Mortgage Professional Australia (MPA) magazine Issue 9.8

www.brokernews.com.au issue 9.8

superbrokers REVERSE MORTGAGE Where to for this niche market?

CORPORATE GIFTS The art of giving

PROFILED RAMS CEO Melos Sulicich

Editor’s letter

The big squeeze

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08 issue

Our annual look at the most powerful players in the aggregation sector revealed Superbrokers’ biggest fear: reduced competition among banks will ultimately hurt brokers.

Every single aggregator that responded to our survey told MPA that broker reliance on the major banks was reducing the value proposition of the third party channel.

At the time of writing brokers were sending 92% of their business to the Big Four.

Some aggregators speculated that banks could use their position to squeeze commissions or alter commission structures.

As one aggregator commented, constant pressure from banks to achieve greater efficiencies through online lodgements and improved quality of conversion rates sends a message to the industry that they want to deal with fewer brokers.

Many speculated that fewer brokers would survive the next 12 months as a result.

Part-timers will be gone, Superbrokers said, which in some ways is good for the industry overall. Those who are left will enjoy more business and higher commissions, as quality metrics will reflect the performance of serious brokers left in the industry.

Also in this issue of MPA is a special report on reverse mortgages.

Journalist Tim Neary uncovers the rise of this unique product, and looks at how it stands to perform in the face of Australia’s impending silver tsunami.

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.

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contents

cover story

36 Superbrokers & boutiques MPA breaks down the who’s who in the aggregation sector and how they have fared in the stormy seas of the financial crisis

Look for extras in MPA's 2.0 eMag edition. On-camera interviews with:

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Melos Sulicich 28

Sam Benjamin 51

48 the art of giving When times are tough and budgets are tight, what are the best gifts to give your clients?

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contents contributors

Features

22 Reverse mortgages: MPA looks at the future of this fast growing niche 46 Re-accreditation fees: aggregators share their thoughts on the impact new fees will have on themselves and brokers

Education 16 Car purchase: Michelle Pearce explains how tax break deductions can help get you into the driver’s seat 20 Opinion: Laurence Hugo offers advice for brokers on helping out clients in distress

IT

Sam Benjamin is from Finance Tools, which specialises in website development, copywriting solutions, mortgage calculators and newsletters. Finance Tools provides online strategies and support for mortgage brokers and other members of the financial services industry.

Elise Ivory is a Senior Associate of Gadens Lawyers, Sydney specialising in Banking and Finance Law.

51 Marketing: Putting together an effective e-newsletter

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52 Web reviews: two websites under the microscope

Michelle Pearce

MPA LENDER

28 Leaders: Melos Sulicich 32 Brokers: Wendy Higgins

is a director of FACE Chartered Accountants, an accounting and taxation advisory firm in Sydney.

With over 12 years experience Michelle has developed skills in the specialist service areas of taxation, business services, corporate recovery and insolvency.

LIFESTYLE

Lawrence Hugo

54 News: a review of news in the world of non-bank lending and mortgage management.

58 Industry profile: Provident Capital

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08 issue

PROFILES

64 My favourite things: Tanya Sale

REGULARS 4 Contributors 6 News 12 News analysis 62 Reviews

EDITOR Andrea Lavigne

HR MANAGER Julia Bookallil

JOURNALIST Tim Neary

MARKETING MANAGER Danielle Tan

PUBLISHER Mike Shipley

PRODUCTION EDITOR Tim Stewart

DIRECTOR Claire Preen

DESIGN MANAGER Jacqui Alexander

REGIONAL MANAGING EDITOR George Walmsley

DESIGNER Ben Ng

MANAGING EDITOR Larry Schlesinger

SALES DIRECTOR Justin Kennedy SALES MANAGER Rajan Khatak Account MANAGER Simon Kerslake

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MARKETING COORDINATOR Jessica Lee TRAFFIC MANAGER Stacey Rudd

is the director and founder of Credit Mediation Services which specialises in assisting families that need representation while dealing with aggressive debt recovery agencies.

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

Government and regulation

budget relief for Qld first homebuyers

ACCC concern at big bank dominance Growing concentration in the banking sector has raised concerns with the Australian Competition & Consumer Commission boss.

A new report has shown that the Big Four may now be overshadowed by the Big Two. Research by Brandmanagement found that CBA/BankWest and Westpac/St.George Bank took a combined 85% of the mortgage growth in the March quarter.

CBA/BankWest raked in $22.7bn of the $26.6bn growth in mortgage books, or 56% of the mortgage pie for that quarter. Westpac/St.George took $7.7bn of the growth.

The combined growth of ANZ and NAB for that quarter was less than 15%.

The ACCC expressed regret over its decision to consent to the CBA/ BankWest merger in October last year. ACCC boss Graeme Samuel admitted the merger was “not one we had been very happy about”.

Since then, the ACCC has indicated that future mergers between major banks and other lenders would not be approved.

“Any potential mergers between members of the Big Four and nonbank financial institutions or regional banks will be examined very rigorously and with intense scrutiny.”

The Big Four have dominated in the wake of a severely crippled non-bank sector. They now hold 72% of the outstanding mortgages, worth $730bn, compared to last year’s figures of 57% worth $539bn.

“We are increasingly concerned about the potential for a less than intensely competitive structure developing among the banks and the non-bank financial institutions as we emerge from the global financial crisis,” Samuel told The Australian.

Queensland’s state budget included stimulus for the first homebuyer market.

The government increased the transfer duty exemption threshold for first homebuyers purchasing land from $150,000 to $200,000, providing savings of up to $5,675. The concession for first homebuyers purchasing vacant land valued at up to $400,000 was also extended.

NSW budget targets first homebuyers First homebuyers in NSW received help from the state budget.

The government announced it is cutting stamp duty by 50% until the end of the year on all newly completed homes below $600,000, providing savings of up to $11,245; and an extension of the $3,000 NSW first homeowners supplement until 30 June 2010.

CBA, Westpac among world’s most profitable banks Two of Australia’s biggest banks rate among the most profitable in the world, according to a new survey by The Banker magazine.

Its July issue, which features its Top 1000 World Banks survey, lists the Commonwealth Bank as the world’s 12th most profitable bank (US5.5bn profits) while Westpac ranks 21st (US$4.6bn).

CBACM0780_A_.pdf

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9/4/09,

11:12

AM

News banks

ING Direct remains independent

Major dissatisfaction

Despite rumours of a possible merger with a major Australian bank, ING Direct maintains that there have been no moves to sell the local operation.

Industry sources to the Business Daily hinted that both NAB and ANZ were eyeing the country’s sixth largest retail bank in terms of loan assets and deposits.

ING Direct has a retail deposit base of $16.76bn and a residential mortgage book of $34bn.

The Dutch company told investors at a conference in Frankfurt that the group would sell 15 businesses in 10 countries over the next three to five years. It has already sold its Canadian direct banking arm for $14bn. ING global chief executive Jan Hommen gave no indication about the future of the Australian operation, but a local spokesperson downplayed the suggestion that there were any plans for ING Direct to merge with a major Australian bank.

Data from the Australian Prudential Regulation Authority revealed that the bank lost $800m in retail deposits in 2008.

unfair contracts regime costs consumers: ABA The Australian Bankers’ Association is warning the government that the proposed unfair contracts regime will create uncertainty for the banking sector and result in higher costs for consumers.

Among the ABA’s concerns outlined in its submission to the government is that the draft provisions inhibit a bank’s ability to access credit risk.

“If the application of the proposed regime creates contractual uncertainty, this could lead to additional costs through the re-pricing of risk that will inevitably be passed on to end users of the credit markets – the very consumers this law is designed to protect – in the form of higher borrowing costs that build new economic inefficiencies and inflationary pressures in the system,” said David Bell, ABA chief executive.

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Business customers reported service levels from the major banks are falling, according to a report in the TNS Business Finance Monitor.

Overall, satisfaction levels with each of the big four is down by 5.25% to 72.1% The biggest decrease was recorded by CBA, which saw satisfaction levels drop by 5.7% to 70.5%.

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BN

The amount banks outside the Big Four such as Macquarie Group, Bendigo and Adelaide Bank and Citi saw their mortgage book fall.

Franchise owners pursue legal action against BoQ Former franchisees of the Bank of Queensland’s owner-managed branches in NSW are seeking damages from the bank for misrepresentation.

According to a report in AFR, at least six former franchise owners are pursuing legal action, while another three are in talks with lawyers and 10 are considering their options.

News brokers

First homebuyer boom losing its steam

MFAA lobbies against stamp duties The MFAA is calling on the Treasury to remove stamp duties charged by state governments on housing loans.

The industry body called stamp duties “inefficient” and “unproductive” costs that must be abolished.

A wide-ranging tax review by Treasury Secretary Ken Henry is reportedly putting the charges under the microscope. Tax experts have already told the commission that home loan stamp duties act as a barrier to moving house and create inefficiencies in the wider economy by discouraging labour mobility.

“If we are serious about making Australia’s tax system more efficient, this is an impost that must go,” said Phil Naylor, CEO of the MFAA. “Stamp duty on home loans is an inefficient and unnecessary cost on homebuyers. It acts as one more reason to stop borrowers from upgrading to a more suitable home or to move to where there are better work opportunities.”

Naylor said that removing the stamp duty on home loans is a simple measure that would boost activity in the housing and lending market and help drive the economy forward.

Sydney broker goes to jail A former Sydney mortgage broker and ex-boyfriend of model Miranda Kerr was sentenced to 21 months imprisonment with a non-parole period of nine months.

Adrian Camilleri, sole director of Asset Finance Service Pty Ltd. was found guilty of one count of fraud following an investigation by ASIC.

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LVRs fell from 73.7% in April to this figure in May, according to AFG’s Mortgage Index

The government-created first homebuyer boom beginning to falter, according to AFG’s Mortgage Index.

The report found demand dropped for two consecutive months from 28.1% in March to 24.8% in May. AFG suggested the figures reflect uncertainty among first homebuyers regarding the future of the grants and stricter credit policy.

Bouris hits small screen Wizard founder Mark Bouris will star in the Australian version of The Apprentice, which will air on Channel 9 later this year. The winner of the weekly series will secure a spot in his Yellow Brick Road business as well as a six-figure salary.

news analysis

Property price rollercoaster Predicting the movements of property prices is as much fun as a rollercoaster – one minute analysts are screaming ‘prices are going up’, the next they are telling Australians ‘to hold on tight, because prices are going down’.

JP Morgan suggested in early June that Australian house prices would drop another 14% – to be 18% below the peak – by the end of 2010.

Rising unemployment, according to JP Morgan, would be the anchor that sinks the property market in the short term.

However, by mid-June media outlets had new research to trumpet. BIS Shrapnel forecasted that average house prices in most capital cities would grow by between 11% and 19% in the next three years. The group’s Residential Property Prospects report, based on data from the Real Estate Institute of Australia (REIA), reported that first homebuyer activity in the lower end of the market was generating ‘green shoots’ of recovery. In the short term, BIS Shrapnel predicted prices would remain relatively stagnant until the rising tide of unemployment peaked around June 2010.

But unemployment is only one of three factors affecting house prices. Fujitsu Consulting’s managing director Martin North said credit rationing and credit policy tightening are the other two drivers of property market prices.

Are banks short of credit? North said no.

“My view is banks are not having difficulty writing loans. They’ve raised a lot of funds through the government-backed guarantee scheme.”

But credit policy tightening, he said, has definitely sharpened in the last eight months. ANZ was the first major bank to tighten credit policy, reducing its maximum LVR from 95% to 90% in November 2008.

ING Direct followed ANZ’s lead dropping its LVRs to 90% in March, while CBA and NAB lowered their LVRs to 95% in the same month.

RAMS also pulled its 100% product from the broker channel resetting its maximum to 95% in late March.

Challenger’s Steve Weston pointed to the US market as an example of the effect credit policy

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tightening has on property prices. “In the US, for example, a number of buyers who traditionally would have been able to get finance now can’t. So you have the supply of housing that is increasing all the time, but you simply don’t have enough buyers coming in to reduce that supply. People will become more anxious to sell and will keep forcing prices down.”

Australia faces a similar situation, he said.

“We’ve had more and more first homebuyers coming in to buy homes in that affordable price range under the 500K mark. We’ve seen that the supply of those homes has fallen and prices have remained fairly stable – they’ve probably even increased very slightly. But if you compare that with the prestige part of the market – houses more than $1m – you see that people there have had to sell because the share market went down and unemployment increased. So prices have really fallen there.

“Now we have seen credit criteria tighten for new loans, which means that a number of the potential buyers won’t have a large enough deposit to buy a home in their price bracket.

“This means that a number of people who would have been buyers in that affordable sector are now going to be squeezed out of the market until they can save a sufficient deposit. And as we know now, rents are in many cases higher than mortgage repayments so you’re not going to save that deposit quickly. And it means you’re out of the market.”

Credit policy tightening combined with the tampering with the First Home Owner Grant will soften the property market. But Weston said investors could be instrumental in propping prices up in the coming months.

While Weston agrees reducing LVRs is prudent given the level of unemployment, he adds: “You are going to see losses in the future, but I hope we don’t sit around and say it was a masterstroke that we reduced LVRs when we did. In fact, by reducing LVRs all at once as an industry, we actually were the driver of some of the downward pressure on property prices.”

Steve Weston

news analysis

Licence to debate As Australia’s mortgage industry draws nearer to implementing national regulation, the finer points of the draft National Consumer Credit Protection bill are coming to the fore.

Among them is the issue of licensing.

The current proposal outlined in the draft legislation (which at the time of writing had yet to be passed into law) requires all those engaged in credit activity to be licensed by 30 June 2011.

But the draft bill allows licence holders to allow credit representatives to perform credit activities on their own behalf. This leaves the door open for aggregators, broker groups and franchise operators to hold the licence on behalf of their brokers, similar to the financial planning industry which allows financial planners to provide advice on behalf of dealer groups.

In the MFAA’s final submission to parliamentary committee, it stated the costs of obtaining a licence should be kept to a minimum to allow individual loan writers to be licensed.

It said: “If only large brokers and aggregators are able to obtain an ACL, there will be a substantial decrease in competition in the industry, because small brokers will effectively be excluded.”

As PLAN’s CEO Ray Hair explained, the issue comes down to how onerous the requirements will be for individual brokers to hold their own licence.

“And until we see the detail we won’t know.

But in principal the way the legislation is drafted an individual can hold the licence, or a broker group can hold the licence, or a sub aggregators can hold the licence.”

Hair said he believes both models will emerge depending on the strategic direction of the aggregator.

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“If you’re a branded model, I think you almost have to go the group licence route,” he said. “But clearly right now all the major players will be doing a review of their strategy and saying ‘do I become the dealer group – in financial planning terminology – and take on more responsibility, but therefore take on more control and become more directive with my brokers’?

Or do you still have each individual running their own brands?”

Should wholesale aggregators take on the licensing on behalf of their members, Hair said it begs the question: do they become branded groups as a consequence?

“What may happen is those groups could cross the line and become a branded group, and the brokers could become more integrated with them.

There’s a cost benefit analysis which has to be done. Brokers will have to pay for the services which may require higher commission splits.”

But should wholesale aggregators allow individual brokers to hold their own licence, the chances are they will remain in the background, said Connective principal Mark Haron.

“As the licence holder will be ultimately responsible to the client and will therefore be keen to promote and protect their brand. Under a wholesale aggregator, the individually licensed brokers will want their brand to reflect their service, value and also customer relationship, not their aggregators.

“Individually licensed brokers will want full ownership and control of their brand, their customers and their loan books and will not want to risk any of these through the potential negligence of an aggregator as the licence holder or another broker with that aggregator.”

Ray Hair

news analysis

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Education tax

shiny new car Michelle Pearce, director of Face Accountants, explains how tax break deductions can help you purchase a new car

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e have many clients asking us about the ability to claim the 50% tax break when buying a new car.

To be eligible for the 50% deduction, you need to have satisfied all of the following: »» be a small business entity (SBE) eligible to use the $1,000 SBE threshold, which means your business turnover needs to be less than $2m »» acquire a new depreciating asset or make a new improvement or modification to an existing depreciation asset which costs more than $1,000 »» enter into a contract to acquire the new depreciating asset between 13 December 2008 and 31 December 2009 »» use this asset for the first time between 13 December 2008 and 31 December 2010 »» use the asset for the principal purpose of carrying on a business.

One of the key points above is that the asset must be used principally in carrying on a business.

Depending on the type of business structure you operate, this point can have different outcomes.

Sole Trader and/or Partnership If you acquire a car with the objective of claiming the 50% tax break, then you need to travel more than 5,000 ‘business kilometres’ in a year and be eligible to make a motor vehicle deduction claim in your personal tax return (using any method except the ‘cents per kilometre’ method).

The government has used the ‘more than 5,000 business kilometres’ method as an indicator of the ‘principal purpose of carrying on a business’.

This means if you were proposing to do less than 5,000 business kilometres in a year, then you will not be able to claim the 50% tax break. The proposed legislation specifically excludes cars deducted under the cents per kilometre method (which is limited to 5,000km).

If you are eligible based upon the above, then the 50% tax break is a great opportunity.

You should note, however, that it is a nonrefundable offset but may add to a tax loss and be carried forward for use in future years.

Discretionary Trust If you are operating your business in a discretionary trust and wish to acquire a car, then as long as you can demonstrate that the car is principally for business use (something for which there is not really a lot of guidance) and satisfy the other conditions noted above, then the trust should be eligible.

However, you need to be aware that if the car purchased has an element of private use then Fringe Benefits Tax will apply. This may even be the case even if there are no employees of the business.

This means you need to work out if the cost of incurring FBT on the vehicle is less than the benefit of the 50% tax break.

Companies and Unit Trusts As with the discretionary trust, as long as the conditions mentioned above are satisfied, the 50% tax break may be claimed. Again, FBT will apply if the car is used for private use (there are some limited exceptions eg, some utes and vans).

But the ‘hidden’ issue with these two structures is that the 50% tax break is not really a deduction (as it is for the other structures) but really just a tax deferral. This is because at the time you distribute the non-assessable income arising from the use of the 50% tax break, the amount may give rise to an unfranked dividend or CGT event E4* which reduces the cost base of the units held by the unit holder.

This means if your entity is a Personal Services Entity or you hold units in a trust with a low cost base the 50% tax break is of little value because you do not have the ability to defer taxable income.

Michelle Pearce

Face Accountants is a Sydney-based accounting firm and taxation advisory firm. We are committed to providing personalised service and quality, expert advice. This does not constitute specific advice.

Readers are encouraged to consult their tax adviser for advice on specific matters If you are considering buying a car call (02) 9555 1309 to discuss how the above applies to your tax situation.

*CGT E4 events occur when unit holders in a trust receive distributions that include non-assessable components such as tax deferred or return of capital amounts. These are deducted from the cost base of an investor’s unit in the trust. If the total of the non-assessable amounts received over the ownership period exceed the cost base, the resulting gain is taxable as an E4 event. An E4 capital gain arises when the nonassessable distributions are accrued. (Sourced from: https://advisers.macquarie.com.au/advisers/accountants_tax/glossary.htm#6)

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Education

credit rationing

legal

contracts

unfair contracts Will your contracts be unfair under Australian Consumer Law? Elise Ivory, senior associate of Gadens Lawyers breaks down what brokers need to be aware of in the proposed legislation Australian Consumer Law – proposed national unfair contract terms legislation »» on 24 June 2009 the Trade Practices Amendment (Australian Consumer Law) Bill 2009 (Bill) was introduced to Federal Parliament »» the new legislation applies to standard form contracts and provides that ‘unfair’ contract terms are void »» the law will apply to all standard form consumer contracts being contracts for »» the supply of goods or services »» a sale or grant of an interest in land »» to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use »» it is proposed that the law will commence on the date the corresponding legislation commences which should is expected to be between 1 January 2010 and 1 January 2011 »» you should ask lawyers now to review your standard form contracts to determine whether any changes need to be made When is a contract term unfair?

A contract term will be ‘unfair’ when all of the following three tests are satisfied: »» the term is used in a standard form contract »» the term would cause an imbalance in the parties’ rights and obligations under the contract »» the term is unnecessary to protect the legitimate interests of the party advantaged by the term

document states that this omission is intentional as it wants to stop parties from trying to structure their contractual arrangements in ways which would seek to avoid the legislation.

Treasury recognises that the lack of a definition may lead to disputes. So if a claimant says a contract was a standard form contract, it is up to the respondent to prove otherwise.

The legislation provides for matters which the court must take into account when determining whether a contract is a ‘standard form contract’: »» one party has more bargaining power »» the contract was prepared by one party before discussions with the other party commencing »» the contract was ‘take it or leave it’ »» the terms were negotiated »» the terms are specific to the transaction »» any other matters referred to in the regulations.

Are there any clauses that cannot be unfair?

The following terms cannot be found unfair. »» terms which define the main subject »» terms which set the upfront price payable »» terms required by law

How is the test applied?

In determining whether a contract term is unfair, a court must take the following into account: »» the extent to which the term would cause, or whether there is a substantial likelihood that the term would cause, detriment to a party if the clause was to be applied or relied on »» how transparent the clause is »» the contract as a whole

What sort of clauses is the legislation aimed at preventing the use of?

Clauses will be assessed on a case-by-case basis.

Some of the examples include clauses that: »» allow one party to terminate but not another »» allow one party to unilaterally vary the contract »» allow one party to renew or not renew a contract »» allow one party to unilaterally determine that a breach has occurred »» limit a party’s right to sue »» allow assignment of rights to the detriment of another party »» allow one party to vary the upfront price without allowing the other party to terminate »» impose the evidential burden on the other party in court proceedings

What is a standard form contract?

The draft legislation provides no definition for ‘standard form contracts’. Treasury’s explanation

What is the impact on existing contracts?

If you are renewing or varying existing contracts, you should be very careful.

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Elise Ivory

Elise Ivory is a Senior Associate of Gadens Lawyers, Sydney specialising in Banking and Finance Law as part of the Tax, Regulation and Compliance team. This publication is provided to clients and correspondents for their information on a complimentary basis. It represents a brief summary of the law applicable as at the date of publication and should not be relied on as a definitive or complete statement of the relevant laws.

Education

credit rationing

Column

hardship assistance

hard truths

There are pros and cons to applying for hardship assistance; Credit Mediation Services’ Laurence Hugo breaks it down for your clients

T

here is a common misconception that those who are deeply in debt and, worse still, deeply in payment arrears, are mismanaging their credit. Some clients run up gambling debts, spend beyond their means or get sucked down by relatives, but there are those who are suffering from events beyond their control. For instance: loss of a business, unemployment and illness.

Financial hardship applies when a person can no longer service their creditors and pay their household bills at the same time. The cracks begin to show when they consistently fall 30+ days in arrears, their phone is disconnected and they max out their credit limits.

They will experience debt collection activity that begins with letters, phone calls and, a new bank innovation, even text collecting.

If left unresolved, the collection activity may end with very serious legal recovery action.

Major life changes can trigger financial hardship but the news is not all bad.

Most financial institutions will have hardship policies and procedures in place. Some have even set up dedicated hardship departments that specialise in assisting customers. Experience has shown that hardship cases may be clumsily handled by normal collection departments, and special circumstances require skilled bank staff.

Customers applying for hardship will at times face hurdles like navigating telephone systems and facing long phone queues. Because people can be intimidated by the gruffness of the whole collections experience, customers can sometimes fail to get their message across. Also, key information can often be overlooked by staff and the application for assistance could be rejected.

Accordingly, it is far better for your client to have professional representation.

To their credit, the big banks and smaller independent debt collection agencies do their best on a policy level to assist their customers as best they can (by bank standards), but sometimes there are mixed results in customer satisfaction.

Your customer should know that banks are legally required to assess applications for hardship. That said, they are not legally obliged to offer the benefits of hardship if they feel the customer is not experiencing financial difficulty.

Hardship application pros: • the banks may reduce or nullify your interest rate for a prescribed term ie, three months • lowered payment arrangement for same term • short term avoidance of collection activity • customer has time to sort out their problems Hardship application cons: • short-term solution only • increased likelihood of a Veda default • hardship offers can just as easily be pulled from the customer, exposing them to sudden and possible vigorous collection activity • hardship applications are a false economy – once taken off the hardship program, customers face extensive arrears which then must be brought up to date If you encounter a client who is experiencing financial hardship its best to consult an industry body such as Creditline or another financial counselling service who will assist your client with the hardship process. MPA

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Laurence Hugo is the director of Credit Mediation Services, which specialises in debt negotiations on behalf of borrowers facing hardship assistance

feature

Reverse mortgages

the rise and rise of

reverse mortgages ‘Aged care’ or ‘ageing in place’ are not phrases that most of us think about every day, but planning ahead now can save a whole heap of financial frustration in retirement. Tim Neary reports on the state of play in the equity release space

R

everse mortgages are sometimes thought of as the mortgage industry’s country cousin.

But given the contribution this product makes in the lending landscape, it is not a completely fair assessment. Just like a river in flood can wreak some pretty substantial damage by the time it reaches the sea, reverse mortgages can be destructive if not given careful consideration.

Ageing in place There is a decline in the number of people moving into retirement villages, because people can now adapt the way they live after retirement. The cost of moving in Australia is fairly high, so more people are going for a reverse mortgage product to acquire funds that will allow them to stay in their homes for longer.

Royal Bank of Scotland’s head of reverse mortgages, Martin Lynch, says that research shows the top category that people are using the money for is renovation. Some want to make their home more aesthetically pleasing by spending the money on decorating.

Others choose to make the house more livable for them as they get older, by installing things like chairlifts.

Others still are doing the renovations that they have been wanting to do for years. “And they’ve all done the math,” says Lynch, “the renovated house will be worth more – and they get to enjoy it.”

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So the big move is into aged care rather than into retirement villages. Lynch estimates that between 10% and 20% of the money RBS lends is to fund peoples move into aged care.

Moving into an aged care facility means needing to come up with an accommodation bond first. In NSW that averages at $220,000. So, according to Lynch, taking out a reverse mortgage gives an alternative to a fire sale.

People in this situation are often not ready to see their house, go as they already have a lot on their plate. But quite often the house that is being sold needs a bit of work to maximise its resale value.

“In this context, the product offers breathing space,” says Lynch.

Elissa Freeman, senior policy officer at Choice consumer group, agrees that it this is a useful product for some people in some circumstances.

“It is true for some people that this product can be a very useful transition to a retirement home or an aged care facility, and it is one of the innovative ways that this product can be put to good use,” she says.

However, the problem is that in some circumstances it creates more problems than it solves.

“And that is when people need to be very careful about using the product. So while we agree that it can be useful, we urge people to exercise

feature

Reverse Mortgages

The Senior Australians Equity Release Association of Lenders (SEQUAL):

caution in applying a reverse mortgage to the particular situation that they are in,” she adds.

In a study Choice undertook last year, it found that large reverse mortgages taken too early in life made it unlikely that there would be enough left later on to downsize or to fund an accommodation bond later in life to get into a retirement village.

In addition, it found consumers would be substantially better off if they downsized earlier rather than took a lump-sum reverse mortgage to tide them over.

1. SEQUAL is a self-regulatory body which was set up by lenders themselves to promote the development of an efficient and ethical Reverse Mortgage market in Australia, in order to help protect the interests of consumers.

2. Since its inception, SEQUAL has made a significant contribution to the effort of to ensure the professionalism of those who offer or distribute Equity Release products for senior Australians. SEQUAL is dedicated to maintaining professional standards of practice within the Australian equity release market.

3. In addition to their regulatory and legal obligations, SEQUAL Members must comply with the SEQUAL Code of Conduct. It covers members’ dealings with borrowers, borrowers’ families and borrowers’ advisers. Failure to comply with the SEQUAL Code of Conduct could result in a lender being expelled from SEQUAL membership.

4. SEQUAL has also established an Industry Accreditation protocol in order to raise the professional standards of the Brokers, Planners, Accountants and Lawyers that assist consumers to make informed decisions about Reverse Mortgages.

5. Market practitioners that achieve Industry Accreditation through SEQUAL gain the designation of Reverse Mortgage Consultant (“RMC”). The RMC designation forms an important part of SEQUAL’s commitment to assisting consumers to easily identify properlytrained market practitioners.

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Reverse mortgages

“The cost of the mortgage over the period of time significantly reduced the options of a couple in their 60s who took out a reverse mortgage product,” she says.

Instead, the longer borrowers can delay, the more options they will have in the future with the product.

Freeman acknowledges that these products are not being marketed as heavily as they were eighteen months ago, and adds that it is not for Choice to say how people should spend their money. But she says that the group gets concerned about marketing that promotes a risk-free solution to a happy life, when all it is doing is delaying problems that can arise later in life.

“Nobody really wants to think about their options for aged care later in life, but the reality is that if you are taking out these products in retirement then you do need to be thinking about your options for when you do come to aged care,” she says.

“A product like a reverse mortgage has implications throughout its life, so whatever borrowers decision is right now, they need to have the foresight to look ahead five, 10, 15 even 20 years down the track to what their needs will be then, and how they will fund them,” she says.

This is the real challenge of the product, since the situation that retired people you are in right now is likely to change as they continue to age.

Things usually go wrong with the product when the cost of reverse mortgage eats into the value of the home, and does not leave enough equity for the retirees to sell and downsize when they feel that it is time to move into a retirement home.

And while Freeman says that it is true that there is not extensive evidence of this occurring, she says it is also true that the reverse mortgage industry has not been a vibrant one in Australia for very long. And, because these problems arise in the medium to long term, she expects to see more problems in the future than we are seeing at the moment.

The most common scenario is that people sign up and then, because of its complexities, they simply don’t understand how the product works.

Freeman acknowledges also that providers are doing a better job of giving individuals the information they need to understand the products, and that they have improved since Choice had put

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Martin Lynch

“ Australia’s lower LVR structure allows for a really flexible product, to better suit the borrower’s needs –Martin Lynch, RBS ” a lot of pressure on the industry body to really lift standards - particularly around the no-negative equity guarantee, but says that did not mean they are risk free.

“They have a complex bundle of risks regarding interest rate risk, longevity risk and house value risk associated with them. Together, this is a difficult combination to manage,” she says.

Safety first in Australia “The products here are better than anywhere else in the world,” says Lynch.

This is because, according to Lynch, in Australia we are more cautious with LVRs than lenders are in other countries around the world like the UK and US; where they seem to be

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Reverse Mortgages

obsessed with wanting to lend people us much money as they can.

Since higher LVRs ultimately mean higher isk for the bank overseas lenders, are unable to be quite as flexible around their products, explains Lynch.

“Australia’s lower LVR structure allows for a really flexible product, to better suit the borrower’s needs” says Lynch.

Another big difference between here and the US is that the no negative equity guarantee in the US is provided by the government, but the customer has to pay a one-off lump sum payment.

This payment could be as much as US$9000.

In Australia, this is a risk cost that is written into the product.

Although some brokers have lobbied to have the US model mirrored here, Lynch argues that you would not want to. “They anticipate that it would encourage more lenders into the market, but the customer solution would be worse – so why would you do it?” he says.

Also, the market in the UK tends to be serviced a lot more by the boutique providers. Although they are boutique providers, they have had a clear run there of eight or nine years before the market dislocation happened – so they are set reasonably fair.

Smaller providers in Australia just did not have long enough to get properly established before the GFC came through and knocked them out, says Lynch.

“So the benefit of having CBA and St.George around is that it has provided a kind of market

snap shot The largest generation group in Australia are now between 45 and 60 years.

They are the so-called Baby Boomers have the reputation of being a high consumption, lifestyle seeking generation.

Now facing the approach of the end of their working life, the Boomers are poorly prepared for retirement. “They have low levels of savings, high consumer debt obligations and inadequate superannuation,” says Kevin Conlon, chief executive officer at SEQUAL. Yet this generation can expect to live longer than any generation before them and intends to enjoy an active retirement. The good news for them is that the vast majority of Baby Boomers have achieved the ‘Great Australian Dream’ of owning their own home, making them “asset rich” but “cash poor”.

In the past, according to Conlon, those in the same position as the Boomers had two choices: to reduce their living standards or sell their home.

This meant either a downgrade in the property they lived in or a move away from friends and family – neither of which was particularly appealing.

However, the emergence of the Australian Equity Release Market gave Baby Boomers another option – to tap into the stored wealth of their home through equity release.

A reverse mortgage is currently the most common equity release product in Australia. Reverse Mortgages are generally only available to consumers aged 60 or over.

With a reverse mortgage, senior Australians can use the equity in their home as security to borrow money. A Reverse Mortgage can be structured as a lump sum, a regular income stream, as a line of credit, or as a combination of these options.

Because reverse mortgage customers don’t need to make repayments on the money they borrow while they live in their home, the balance outstanding grows as fees and interest are added and the interest compounds. The reverse mortgage must be repaid in full if the customer sells their home or dies and, in most cases, if they move into aged care.

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Reverse mortgages

stability. People would be nervous around the product if it had simply been boutique players only,” he says.

In the UK the early repayment fees are dramatic; they can be as much as 10%. In Australia they are never more than 1%.

Welcome the Baby Boomers At somewhere in the region of $300m to $400m new additions per year, with a total book value of just $2.5bn, the reverse mortgage market is still scratching the surface of its potential, says Lynch.

With somewhere around 3% current market penetration, where over 70% of retired people live on a basic pension, and with the Baby Boomers coming through the growth of the product is set to be fairly rapid.

Lynch says he has already seeing growth of around 60% in the industry. He attributes it to a more sophisticated product being offered. “One of the things that changed was the old products tended to be like a blunt instrument ‘have a big lump sum and off you go’ and that should last you for the rest of your life,” he says.

Now, he says, the products in Australia have got “fairly sophisticated, fairly quickly”. Borrowers have more to chose from; with new line of credit and monthly income product options.

“This means the level of borrowings have fallen, while the level of facilities taken continues to grow quite rapidly,” says Lynch.

But it is a good thing since like a rainy day facility, borrowers get access to funds when they need them. MPA

case studies: reverse mortgages in action – both sides of the coin Name

Age

State

Josephine Cameron

87

Qld

For 87-year-old Queensland resident, Josephine Cameron, a reverse mortgage was essential to allow her to age in her own home. Cameron, who lives alone, used the funds from a reverse mortgage to paint her house, put up a new fence, install a new cook top and make her home generally more comfortable. She also receives a regular income stream of $400 per month.

“My independence is my life. The reverse mortgage has allowed me to stay in my home, pay for some improvements and has given me great peace of mind,” says Cameron.

“I never expected to live this long. I’ve volunteered in nursing homes and never want to go into one. I was getting very depressed. My reverse mortgage saved my life.”

Name

Age

State

Beverly Aulton

69

SA

Beverly Aulton from Highgate in Adelaide will be 70 in November, and says that her reverse mortgage loan is the best thing she ever did.

“I couldn’t survive on the pension and keep my house. The reverse mortgage loan has allowed me to stay in the home I love and has taken away everyday worries like whether or not I can afford to put petrol in the car,” says Ms Aulton.

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Ms Aulton, who lives alone, has used the money from her reverse mortgage loan to make essential repairs to her house like replacing dangerous light fittings, paying for large medical bills for her dog, and to improving her garden.

“I’m very house proud and love my garden. The loan has allowed me to maintain a comfortable lifestyle and to keep living!” says Ms Aulton.

Name

Age

State

Percy

81

NSW

Four years ago Percy took out a reverse mortgage to cover funeral and medical expenses for his wife who died of cancer.

“I’d been living on the aged pension and credit cards and needed some money to pay them back. I only needed $20,000 but the minimum loan was $40,000 so I took that,” says Percy.

But now his debt has increased to close to $60,000.

“The debt is accelerating quite rapidly. So I’m thinking of selling, paying back the loan and buying something smaller.”

Percy has lived in his home for more than 30 years and has friends living close by, so he would like to stay in the same area. Unfortunately, he calculated that he might not have enough left to trade his home for a modern one-bedroom that he is interested in.

“I’ve put it on the back burner for now, but I will rethink it over in the next six months,” he says.

mark your

calendar 25th September 2009 The Westin, Sydney Book your table online at www.australianmortgageawards.com.au

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14/07/2009 9:33:56 AM

Profile leaders

Good

for business

If Melos Sulicich’s influence on RAMS in the short space of time that he has been at the helm is anything to go by, there are certainly prosperous times ahead for the non-bank lender

J

ust over a year ago Melos Sulicich, chief executive at RAMS, took the biggest risk of his life.

At the time when Lehman Brothers was on the rack and the US government has just bailed out the ailing AIG, Sulicich went ahead and launched a selection of new consumer campaigns into the Australian market.

“The whole market was really skittish – from a RAMS point of view we stuck our head above the parapet and announced: ‘We’re open’,” Sulicich says.

To the victor go the spoils. Happily for Sulicich, the campaigns took off.

In an environment where the RAMS brand was still pretty damaged, Sulicich looks back now and admits it was a real turning point for the non-bank lender. And business, he adds, has progressed “really well” from there.

The gamble has paid off handsomely, lifting brand consideration back up to 90%. “This means,” he explains, “nine out of ten people would use RAMS to buy a home – which is what it was in RAMS’s heyday.”

In addition, RAMS picked up the Money magazine non-bank lender of the year award earlier this month, which Sulicich describes as

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“just about the proudest moment I have had in my professional career.”

The company had been in real trouble twelve months earlier. “Not only from a financial but also from a market point of view, and from a distribution point of view. But to get ourselves into a position where we could win that sort of award is fantastic.”

see the interview live Melos Sulicich reveals what’s next for RAMS. See the on-camera interview on Brokernews.com.au/ MPA

Rough water ahead In his role as skipper he has already made a difference – but Sulicich is under no illusion that the rest of the journey will be plain sailing.

Although the lack of ready funding for non-bank

career turning points “Two things; and they are both associated with the early part of my working career.

The first is the training and discipline that I received at Shell. I’ve never ceased to be amazed at how many Shell people you come across in very senior positions around the country.

And then having the opportunity at the young age of 29 to be plucked out of obscurity and put into a relatively senior position with a high leadership requirement. And being left, albeit with a lot of support around, to work out the issues that arose by myself.

Through both, I got to understand the contribution of my own personal influence on my own career.”

Profile leaders

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

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Profile leaders

lenders is the top priority for everyone with a vested interest these days, he feels there is no single stand-out issue facing the industry right now. “Instead, there are a whole lot of very big issues facing it,” he says.

Lenders’ relationships with brokers is one.

“Lenders need brokers, and vice versa. In the parry and thrust of day-to-day dealings that is sometimes forgotten. When I read some of the things written on the broker blogs I sometimes wonder what’s going on in those relationships,” he says.

Getting quality through the system is another.

“It’ll be partly regulated by regulation, but it will need the input of a whole host of people who want to do the right thing in order for it to work its way through properly,” says Sulicich.

Brand awareness Now, Sulicich finds himself waiting in anticipation to see what the next roll of the dice will be.

It will take five years for the industry to redevelop again, he believes. And when it does, brands will be an increasingly important part of the landscape.

“Banks are already reconnecting with the consumer through strong brand awareness.

“Look at the multi-branding strategies of Westpac and the CBA. Nowadays you need to have a strong consumer brand to be a player in this industry, and it needs to resonate with the consumer a whole lot more.

“Even throughout the broker network, people are more concerned about which brand they wish to associate with their mortgage.”

And it is this that is making the so-called perceived flight to brand quality somewhat of a misnomer. Consumers are certainly fleeing, but for Sulicich its more of a consumer flight to security.

“This is where brand names come into their own. Take the RAMS brand. It’s fundamentally a good brand which has stood the test of time,” he says.

Equally, as far as Sulicich is concerned, the current discussion about the lack of competition is not as real as some people would want it to be.

“The market place is still quite competitive.

Even today, the four major banks come to market with different interest rates and different commission structures. For brokers, that is good and healthy competition. Besides, with two-year

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“ Even throughout the broker network, people are more concerned about which brand they wish to associate with their mortgage ” fixed rates recently on offer at at 2.99%, how can you tell me that there is no competition in the market?”

Instead, he feels there is a tendency to confuse competition with the reduction in the number of players there are still active in the market. “Over time that will sort itself out too, as more come into the market,” he says.

Back to the future Sulicich has had a bit of a journeyman existence in terms of a professional career. But while he might have been “all over the place” as he describes it, most of his roles have been an ideal lead-up to the role that he is in right now. His past roles were not only in the sales and marketing space – most were focused on third party distribution too.

“Generally I’ve gone to market with a franchised engine, broker, or third party element rather than a direct sales operation,” he says.

Most of the companies that he has worked for have been large and listed. It is what he learned about working with people by going to market through a third party distribution force that has prepared him for his unique role as both CEO of RAMS and the head of the Westpac broker business.

But the ability to keep a straight aim with constantly changing goalposts is a skill he has had to develop quite recently.

“I started in this role in September last year, and since then things have changed if not on a weekly basis, then on a daily basis.”

And when he is not in the office contemplating the non-bank’s next strategic play, or spending time at home with a teenage family, Sulicich can be found on his racing bike enjoying a long ride.

He sometimes competes in triathlons, although he says that was easier when he lived in Melbourne, which he says is a bit more triathlon friendly than Sydney.

“But I swim like a stone, so the first part of the event is always hard work,” he laughs. MPA

Personal File + Age: 48 + Family: Married with three teenage kids and one niece who lives with us. As well as the normal assembly of pets. + Favourite band: Cold Chisel, probably. It’s quite sad that I haven’t leapt beyond the 1980s. + Sports: I’m a bit of a cricket tragic, staying up late at night to watch it all. Also, I follow Carlton passionately in Aussie Rules. And when I get the opportunity, I always watch the triathlons. I think triathletes’ personal fitness and dedication make them among the greatest.

Doing three sports like that is really hard work. + Movie: One Flew Over the Cuckoos Nest with Jack Nicholson. + Self described: I’m passionate and driven.

I’ve got an end in mind and I work pretty hard and long hours to get there. + Business goal: To strive for continuous improvement. There is always a way to do things better. + If the house was burning, and the family was safe: The photos. + Retirement plans: I don’t live near the beach at the moment so I’d like to go back to the beach somewhere. But that is a long way off, I have to tell you.

Profile leaders

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Profile brokers

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Profile brokers

Wendy Higgins is not afraid to put in the hard yards. The South Australian broker demonstrates what it takes to be the industry’s best.

Choice broker W

endy Higgins does not have time to complain about lenders’ service levels, poor turnaround times and commission cuts – the Mortgage Choice broker based in Glenelg East, SA is too busy writing loans.

At the end of May, Higgins closed the books on a Friday with 129 loans. “And I thought I don’t really like 129. But when I came in on Saturday there was another one there and I thought: yes! So I loaded it quickly – 130 just sounds a lot better.”

It’s that kind of dedication that has catapulted Higgins to third place on MPA’s Top 100 broker’s list and landed her in the Mortgage Choice Hall of Fame. And her list of accolades goes on: Mortgage Choice National Franchisee of the Year (three times); Franchise Council of Australia Award Winner (four times); and Personal Australian Mortgage Awards Salesperson of the year (two times).

It is an impressive record, but Higgins is not one to rest on her laurels. She spends seven days a week working on loans and growing her business.

“If you’re doing that many loans you have to keep up with it and I have to work weekends. I don’t mind. If I’m going to be sitting at home watching television, I might as well use my laptop to put a deal together at the same time.”

Higgins has cut a mean pace since she left her job of 24 years with ANZ to become a Mortgage Choice franchisee.

Her decision to leave the bank was made easy by a disappointing promotion. When Higgins looked back at her professional experience the choice to move into broking seemed natural.

“When I thought about what I really liked doing in the bank, it was helping people into homes. I’d done business lending and cross-selling and all that sort of thing, but I thought this is just going to be a lot easier, ” she says.

She saw an ad for Mortgage Choice, liked what she saw and opened up shop. Going the franchise route was a natural for Higgins – her husband had previously owned a pet shop franchise and so she was familiar with the model and the support it offers.

“There were about three or four people who told me I was absolutely crazy. Even one I saw a week ago said ‘I didn’t tell you at the time, but I thought you were crazy’. I’ve never looked back.”

It is hard to believe, but when Higgins first started she was working even longer hours. In the very early days, Higgins did all the administrative work and that meant faxing applications in the wee hours of the morning so she could clear her daytime schedule to see clients.

Higgins was on her own for four months before she hired her first staff member. She says the hardest part about those early days was working alone. “[Now] we have lunch on Friday and we’re talking to each other, and you hear what’s happening with other deals. And I think that’s been the best for us. Everyone can’t remember every thing about every single lender, so we discuss these issues and pool our knowledge.”

Getting help was integral to keeping up with customer demand. When she first started, Higgins says she could do about 20 loans a month on her own – now she files closer to 60. Not only has

Fact File + Business name: Wendy Higgins Mortgage Choice Glenelg East + Start date: 1998 + Size of loan book: $785m + Secret to success: “I couldn’t do what I do without my husband because he looks after all our books, pays the wages and the bills and looks after all of our properties. So he’s got a full time job. He doesn’t work in the office, he works from home and when our daughter is here he looks after shopping, cooking, washing. I just work.” + Hobbies: Reading, watching AFL and socialising with friends (with the odd glass of red wine)

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Profile brokers

increasing her staff improved her productivity, but she has gotten more efficient and proficient.

“E-lodgement, cloning applications over for the next one – that all saves time.” Like most brokers the service delays have really impacted her business. Her staff members sometimes make 50 to 60 calls on every deal. “That’s where your administration is clogged up. It’s shocking really, the service we’re getting – but we work through it.”

Higgins also uses her broking clout and BDM connections to get deals done more quickly.

“We’re one of two [brokerages] in SA that have priority at BankSA. At Westpac we’re ‘advantage plus’, and CBA aren’t too bad anyway. If we need to write ANZ we’ve got a good BDM.” It is important to give clients realistic expectations though, she says. “In SA our settlements are normally 30 days. It was a week to get finance and you’d settle in 30 days, and everyone coped with that. So what we’ve had to do is get the message out there that the settlements have to be 60 days and the finance three weeks.

Because it’s not just getting it approved, it’s what happens afterwards. Once you’ve got the approval you think ‘oh fantastic’, but you’ve still got to work through every step to get it to settle.”

While Higgins has not lost customers to the direct channel, she is not advertising rumours that borrowers can get loans approved in two days by going to their branch.

Shopfront Despite pressure from Mortgage Choice to have a shopfront, Higgins started off working from home.

But she still kept a professional profile.

“One of the things I learned really early on was to get up and get dressed, do your hair, and put your make-up on, because a couple of times people would just drop in and I wasn’t prepared. And I think a lot of people don’t ever get started because that’s how they are. Even if I go into the office Saturday and Sunday I’ll still get dressed and put make-up on. I make sure I feel professional. And then it comes through that you get the work done.”

After seven years, Higgins moved from her home and opened a shopfront in a prominent area in Glenelg East. While maintaining professionalism was never a problem, the new location does give her business more exposure.

She also advertises in the local paper – something she has always done, but it is more about reassuring people she is still around than actually trying to drum up business, she says.

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Another source of exposure for Higgins is team sponsorship. She spends from $70–$80K a year on sporting clubs. Not only does sponsorship allow her to brand team clothing and gear with her business name, but club committees and parent groups attend mandatory investment seminars as part of the deal.

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

Higgins has a marketing manager who is responsible for looking after the sporting clubs, having literature at the clubs and events and organising ladies lunches, seminars, and so on.

All of her staff members are handpicked, she says, and her relationship with them is a source of pride. Higgins supplies staff with company vehicles and they receive wage rises every year.

“They know where my income is coming from – my loan book. As long as my loan book keeps going up then they’re going to keep their jobs and their wages will keep going up.”

And the team has fun, she says. “We have birthday lunches. Mortgage Choice has a few social events and we have our own social events and our own team meetings, we go out for dinner.

We’re all very close.”

Not everyone pulls the kind of hours Higgins does, but she says her team works longer if the work is there and cuts off early when they can.

She recently returned from a three-week holiday in Italy courtesy of Mortgage Choice, to which she invited two of her staff members and their partners. “So we share the rewards around,” she says.

Higgins describes her most satisfying achievement as not only growing her business, but growing the professional experiences and personal wealth of her staff members as well.

“I’m very proud of what I’ve created and being able to share it with eight [people] has been the most rewarding thing. And they’re on good wages and have the confidence to buy property and do other things.”

In the short-term, Higgins’ goal is to just keep writing loans. At this rate, one expects to see her in this year’s top 10 again. MPA

“ It’s shocking really, the service we’re getting – but we work through it ”

Profile brokers

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Super brokers

The only constant is change – a phrase well suited to the mortgage industry over the last 12 months. MPA breaks down the who’s who in the aggregation sector and how they have fared in the stormy seas of the financial crisis

Cover

Superbrokers

C

200

ongratulations, the worst is over.

On the world economy’s round trip to hell, we seem to be turning around for home (or at least somowhere close to it).

At this time last year, brokers were rocked by commission cuts. Being told they were taking a 30% paycut when the economy was softening was not news mortgage brokers wanted to hear. And not only were broker groups told they would be earning less, but they were also told they had to do more to earn the reduced commissions.

But the good broker groups adjusted. And government stimulus packages, combined with the First Home Owner Grant and lower interest rates, meant business kept flowing through the doors.

While Australia is hardly out of the woods yet and issues such as competition in the industry remain unsolved, analysts say there are green shoots of recovery.

At this juncture it is particularly vital for brokers to reassess their strategic partnerships.

Are you with an aggregator that is going to help you ride through the rest of the crisis?

Superbrokers 2009 gives brokers unique insight into the aggregation market – which organisations are growing and which ones are slowing.

The survey We have broken up this year’s survey into “Superbrokers” (aggregators with 200+ members) and “Boutique broker groups”. Size is an important factor – especially in the face of increasing consolidation – but we want to recognise the strong service proposition of several smaller players and the resilience they have shown in these turbulent economic times.

The number of participants in our Superbrokers survey has varied since its inception in 2005, with some participating opting in one year and pulling out the next. Some players exit the survey as a result of acquisition, such as City Pacific Finance, which was bought by OneLend for $2.2m in December, and has remained quiet ever since. But other players (such as FAST and PLAN) are stalwarts in the survey but chose not to reveal their data to our readers – as is the

prerogative of most privately-owned companies.

For this reason it makes it very difficult to analyse the growth (or decrease as the case may be) in business that each aggregator experienced over the last financial year. MPA would like to thank all of this year’s Superbrokers, without their participation this glimpse into the aggregation sector would not be possible.

Membership Last year, aggregators across the board said they expected broker numbers to drop. Indeed, growth among the larger aggregators had slowed – AFG recorded only 0.66% growth last year, while Mortgage Choice recorded 2.2% growth.

Unsurprisingly, this year’s expectations are in line with comments made 12 months ago.

LJ Hooker says it expects brokers may be drawn out of the industry due to three key factors: the reduction of commissions, the tightening of the lender panel and the introduction of the new National Consumer Credit Protection Bill. “These factors will cause contraction within the industry and encourage underperforming brokers to leave,” it said. The franchise group experienced a significant 36% increase in broker numbers last year over 2006, but it recorded a slight drop in the last 12 months – from 153 brokers in Australia last year to 150 in 2008/09.

The bulk of people leaving the industry will be part-timers, predicts Loan Market Group, which has 400 active brokers. “There will be some reduction in numbers, but mainly due to brokers who work part-time. They will find it more difficult to retain accreditations with lenders and comply with the industry requirements,” it said.

Mortgage Choice numbers went down from 678 last year to 600 in 2008/09, but the franchisor says job security concerns could boost its numbers.

The company’s Potential Franchisee Survey published in June found that close to half of all Australians planning on purchasing a franchise in the next three years have been motivated by the difficult economic climate.

Mortgage Choice is well-prepared for newbies entering the industry.

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Cover

Superbrokers

“As a result of feedback from our recent ‘rookie’ franchisees, Mortgage Choice’s Franchise Foundation Program was completely reviewed in 2007/08 and revised and relaunched as the Rookie Development Program. The main objectives of the program are to have a standard developmental path for our new franchisees and to assist in their productivity through mentoring, training and coaching,” it said.

Mortgage Choice was not the only Superbroker to suffer a drop in membership. The number of brokers with National Brokers Group decreased from 800 in 2007/08 to 600 this year, and it predicts that the industry will shrink further.

“The number of active brokers will reduce as the part-time brokers are affected by minimum lodgement requirements from lenders, Westpac, ING and CBA. The compliance changes in respect to training Cert IV and the introduction of the new credit legislation will see a number of members move out or sell their businesses.”

Connective was bold enough to put a percentage figure to its prediction on broker numbers. “We expect the number of brokers to contract by 10–15% as some choose not to continue in a licensed and more regulated industry,” it said.

“Many brokers are also very concerned that their businesses and client relationships are being negatively affected by poor lender service levels and continually changing lender policies, and are therefore questioning their future in the industry.”

That said the number of Connective brokers has dramatically grown in the last 12 months. It went from 690 brokers in 2008 to 990 in 2009 – a growth rate of 43%. Year on year, Connective seems to buck the trend when in comes to membership numbers. Last year, it recorded a growth rate of 95% and in 2006/07 it grew 77%.

While nearly all of Connective’s brokers come from another aggregator or a banking background, it says it does support new brokers entering the industry. “When we have someone come to us who is new to the industry, we refer them to a number of brokers using Connective who provide them with appropriate training and mentoring.”

Threats Many of the issues that plagued mortgage brokers in 2008 were exacerbated in 2009. Flight to brand quality became a full scale mass migration. AFG’s mortgage index report found brokers were sending 92% of business to the major banks.

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Australian Finance Group Year established:

Number of company employees

1994

155

Head office location: States/territories operating in:

Perth

Nationwide

Number of lenders on panel:

We have 37 separate lenders on our panel some cross over between Residential and Commercial. Currently we have 28 lenders on our Residential panel and 20 on our Commercial panel.

Senior management team:

Brendan O’Donnell (CEO); Garry Dowd (National Business support and development manager); Dennis D’ Angelo (national sales and commercial manager); Julianne Mcknight (head of compliance and risk): Andre Szarukan (Head of Marketing) Tobin Fonseca GM operations.

Industry association membership:

MFAA, FBAA, LIXI and COSL Average settlement volume by broker:

n/a Loanbook and Broker Statistics

08/09

Size of residential loanbook

$53 bn

Size of commercial loanbook

$3 bn

Annual residential loan settlements

$16.2 bn

Annual commercial lending settlements

$1.25 bn

Number of loan writers/brokers

2129

Broker breakdown by state: VIC/ TAS:

31%

NSW/ act: 29%

QLD:

16%

WA:

13%

SA/NT

10%

Several aggregators in our survey outlined their concerns over the lack of competition in the mortgage market.

“Evidently the main threat posed to aggregators over the next 12 months is the reliance on the four major banks. In the last year it has become clear that there is a shift in consumer trends with more consumers dealing directly with the major banks rather than the third party broker channel. As a result, this is reducing the value proposition of the third party channel,” said Peter Bromley, general manager.

According to Bromley credit policy tightening will continue over the next 12 months making it increasing difficult for consumers to obtain a home loan. Consumers will need to present a strong credit history along with healthy savings to obtain a home loan, he says.

As a result, brokers are likely to see lending volumes contract. This will have a flow-on effect to the brokering channel as business is driven through the four major banks. “The overall message to the market is that the major lenders

Kevin Matthews

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Super brokers Superbrokers

Connective

Choice Aggregation Services Year established:

Number of company employees

1997

n/a

Year established:

Number of company employees

2003

23

Head office location: States/territories operating in:

Head office location: States/territories operating in:

Melbourne

Melbourne

Nationwide

Nationwide

Number of lenders on panel:

Number of lenders on panel:

35 lenders – includes 28 residential lenders and 19 commercial lenders i.e. some lenders offer both residential and commercial products

49

Brendan O’Donnell

Senior management team:

Glenn Lees, Murray Lees, Mark Haron Industry association membership: MFAA, COSL, LIXI

Senior management team:

Brendan O’Donnell (CEO); Garry Dowd (National Business support and development manager); Dennis D’ Angelo (national sales and commercial manager); Julianne Mcknight (head of compliance and risk): Andre Szarukan (Head of Marketing) Tobin Fonseca GM operations.

Industry association membership:

MFAA, FBAA, LIXI and COSL Average settlement volume by broker:

$852,237 Loanbook and Broker Statistics

Industry association membership:

Size of residential loanbook

Member of all industry bodies

Size of commercial loanbook

Average settlement volume by broker:

Annual residential loan settlements

n/a Loanbook and Broker Statistics

08/09

Size of residential loanbook

n/a

Size of commercial loanbook

n/a

Annual residential loan settlements

n/a

Annual commercial lending settlements

n/a

Number of loan writers/brokers

n/a n/a

Annual commercial lending settlements

$261m

Number of loan writers/brokers

990

Broker breakdown by state: VIC/ TAS:

25%

NSW/ act: 57%

QLD:

9%

WA:

2%

SA/NT

7%

1,442

Firstfolio (Newloan/ Lawfund/eChoice)

Finance & Systems Technology (FAST) Year established:

08/09

$11.79bn

Number of company employees

2000

19 direct, 14 indirect

Year established:

Number of company employees

1995

45

Head office location: States/territories operating in:

Head office location: States/territories operating in:

Sydney

Sydney

Nationwide

Nationwide

Number of lenders on panel:

Number of lenders on panel:

38 lender – includes 10 commercial and equipment lenders

Aggregation 25+ Wholesale 5

Senior management team:

Senior management team:

Steve Kane (MD), David O’Toole (National Sales Manager), Laurie Duffus (National Business Development Manager), Deborah Tran (Operations Manager)

Mark Forsyth, CEO; Andrew Russell, head of distribution; Brett Mansfield, GM Newloan/eChoice Industry association membership:

Industry association membership:

MFAA

MFAA/FBAA

Average settlement volume by broker:

Average settlement volume by broker:

$600k

Will not provide info

Loanbook and Broker Statistics

Loanbook and Broker Statistics

08/09

Size of residential loanbook

Size of residential loanbook

n/a

Size of commercial loanbook

Size of commercial loanbook

n/a

Annual residential loan settlements

Annual residential loan settlements

n/a

Number of loan writers/brokers

2850

Annual commercial lending settlements Number of loan writers/brokers

Broker breakdown by state:

08/09

Top: Steve Kane Above: Mark Forsyth

$12.1bn n/a $3bn approx Part of above 500+

Broker breakdown by state: VIC/ TAS:

31%

NSW/ act: 29%

QLD:

16%

WA:

13%

SA/NT

10%

n/a

Broker breakdown by state: WA: 543; SA/NT: 182; QLD: 253; NSW/ACT: 1442, VIC/TAS: 430 brokernews.com.au

39

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Superbrokers

want to achieve efficiencies in their mortgage businesses by dealing with fewer brokers, driving lodgements online and improving the quality of conversion rates across the industry. He says that with the exit of many non-bank lenders, the major banks have achieved a stronger competitive position. They can use that to focus on the direct channel and decrease commissions that are given to the brokering channel, Bromley adds.

The Loan Market Group’s executive director John Kolenda agreed that reduced competition affects the broking proposition. “We have seen the remaining lenders struggle with application volumes which affects the broker service delivery – something which has been a key benefit of the channel. There is also a reduced range of options for consumers,” he says.

Smartline’s managing director Chris Acret also commented that “the current deterioration in lender service levels represents a deterioration in the service brokers provide their clients.”

Competitiveness among lenders is crucial for a level playing field within the mortgage broking industry, says finconnect’s general manager Tanya Sale. “In the past year we have seen the big four [banks] take a stranglehold on the market and disproportionately increase their share in the industry. This is reflected in the poor turnaround times, fall in service standards and further veiled threats to reduce commissions. All of this is not evident within their retail outlets which is causing a surge in channel conflict. A healthy and vibrant industry relies upon competition.”

Loankit’s Kym Rampal summed up the ultimate threat brokers face in light of reduced competition – “customers may decide that they no longer see value in using a broker.”

But competition (or the lack thereof) and reduced service levels were not the only threats to the aggregation sector outlined by Superbrokers.

Mortgage Choice CEO, Michael Russell, says aggregators that are not able to evolve and adapt to the changing environment – as well as those that neglect to think ahead – will face problems.

Aggregators need to achieve more than single digit credit growth to succeed, he adds.

Connective principal Mark Haron echoed Russell’s comments. “The world has been turned upside down for the ‘old style’ aggregators that rely on commission splits, lender bonuses and lender

40

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Loan Market Group Year established:

Number of company employees

1994

46

Head office location: States/territories operating in:

Sydney John Kolenda

Nationwide

Number of lenders on panel:

35 Senior management team:

Sam White - Chairman; John Kolenda – Executive director; Dean Rushton – Chief operating officer Industry association membership:

MFAA Average settlement volume by broker:

$1m Loanbook and Broker Statistics

08/09

Size of residential loanbook

$13.5bn

Size of commercial loanbook Annual residential loan settlements

$400m $4.95bn

Annual commercial lending settlements

$280m

Number of loan writers/brokers

400

Broker breakdown by state:

n/a

National Brokers Group Year established:

Number of company employees

1995

19

Head office location: States/territories operating in:

Newcastle Steve Lambert

Nationwide

Number of lenders on panel:

50 Senior management team:

Steve Lambert (CEO), Tony Newcombe (training manager), Katrina Cowie (finance manager), John Halligan (office manager) Industry association membership:

MFAA, FBAA, COSL Average settlement volume by broker:

$3.7m Loanbook and Broker Statistics

Size of residential loanbook

08/09

$8.85bn

Size of commercial loanbook Annual residential loan settlements

$2.23bn

Annual commercial lending settlements Number of loan writers/brokers Broker breakdown by state:

n/a

600

200

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Super brokers

Superbrokers

Mortgage Choice

PLAN Year established:

Number of company employees

1995

Top: Ray Hair Above: Michael Russell

94

Year established:

Number of company employees

1992

89

Head office location: States/territories operating in:

Head office location: States/territories operating in:

Melbourne

Sydney

Australia, NZ

Nationwide

Number of lenders on panel:

Number of lenders on panel:

25

23 as at late June 2009

Senior management team:

Senior management team:

Ray Hair, CEO; Company directors: Alex Moulieris (managing director); Drew Hall Industry association membership:

Michael Russell, CEO; Company directors: Peter Ritchie (chairman); Steve Jermyn, Peter Higgins, Rod Higgins, Deborah Ralston, Sean Clanc

MFAA, FBAA

Industry association membership:

Average settlement volume by broker:

MFAA

$600k

Average settlement volume by broker:

Loanbook and Broker Statistics

08/09

$13.6m 6 months to 31 dec 08

Size of residential loanbook

n/a

Loanbook and Broker Statistics

Size of commercial loanbook

n/a

Size of residential loanbook

Annual residential loan settlements

n/a

Size of commercial loanbook

Annual commercial lending settlements

n/a

Annual residential loan settlements

Number of loan writers/brokers

n/a

Annual commercial lending settlements

Broker breakdown by state:

$34.2bn $192m $8.39bn $67m

Number of loan writers/brokers

n/a

600

Broker breakdown by state:

NSW NTH:

19%

NSW Sth/ act: 15%

QLD:

23%

WA:

13%

SA/NT

10%

NSW Nth: 19%, NSW South/ACT: 15%, Vic/Tas: 21%, Qld: 23%, SA/NT: 7%, WA: 12%

Smartline Year established:

The Mortgage Professionals

Number of company employees

1999

Top: Chris Acret Above: Mike Nicholson

40

Year established:

Number of company employees

1998

10

Head office location: States/territories operating in:

Head office location: States/territories operating in:

Sydney

Sydney

NSW, VIC, QLD, SA, WA, TAS

QLD, NSW, ACT, VIC, SA

Number of lenders on panel:

Number of lenders on panel:

32

30 Residential Lenders and 20 Commercial Lenders.

Senior management team:

Senior management team:

Chris Acret, managing director; Joe Sirianni, executive director; Jayson Billings, national operations manager.

Company directors: Chris Acret, Joe Sirianni, Neil Pinner, Michael Brennan

Mike Nicholson, Michael Ryce, Jeff Wong, Greg Evans, Marcus Obrien, Pushapwant Sandhu; Company directors: Mike Nicholson, Michael Ryce, Jeff Wong

Industry association membership:

MFAA, FBAA

MFAA , FCA

Average settlement volume by broker:

Average settlement volume by broker:

$5.14m p.a

Industry association membership:

$15m Loanbook and Broker Statistics

08/09

Loanbook and Broker Statistics

08/09

Size of residential loanbook

$4.1bn

Size of residential loanbook

$9.8bn

Size of commercial loanbook

$480m

Size of commercial loanbook

$350m

Annual residential loan settlements

$1.44bn

Annual residential loan settlements Annual commercial lending settlements Note: merged figures - includes Mortgage Force Number of loan writers/brokers

$2.75bn $150m 200

Annual commercial lending settlements

$120m

Number of loan writers/brokers

300

Broker breakdown by state:

Broker breakdown by state:

n/a

NSW:

66%

VIC:

25%

QLD:

6%

act:

1%

SA:

1%

brokernews.com.au  

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Superbrokers

Boutique broker groups Loankit Year established:

finconnect australia pty ltd

Number of company employees

2004

5

Year established:

200

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Number of company employees

2006

8

Head office location: States/territories operating in:

Head office location: States/territories operating in:

Sydney

Sydney

NSW, ACT, VIC, QLD, WA

Nationwide

Number of lenders on panel:

Number of lenders on panel:

residential 30 lenders; non-conforming 5; commercial 18; equipment finance/leasing, personal loans and deposit bonds 9

15 Senior management team:

Tanya Sale – general manager; Marc Incerti – in-house legal counsel; Company directors: Marianne Perkovic/Barry Lambert

Senior management team:

Kym Rampal & Carolyn Samer. Company directors: Kym Rampal

Industry association membership:

Industry association membership:

MFAA,COSL, DOCEP

MFAA/COSL

Average settlement volume by broker:

Average settlement volume by broker:

n/a

$710,000

Loanbook and Broker Statistics

Loanbook and Broker Statistics

08/09

Size of residential loanbook

$2.16bn

Size of commercial loanbook

n/a

Annual residential loan settlements

2,200 / $775m

Annual commercial lending settlements

n/a

Number of loan writers/brokers

91

Size of residential loanbook

Top: Kym Rampal Above: Tanya Sale

08/09

$13.5bn

Size of commercial loanbook Annual residential loan settlements Annual commercial lending settlements Number of loan writers/brokers

$400m

$4.95bn $280m 157

Broker breakdown by state:

Broker breakdown by state:

Broker breakdown by state: Qld: 8%, Vic: 6%, WA: 2%, Act: 1%, NSW: 81%

Broker breakdown by state: NSW/ACT: 43%, Vic/ Tas: 29%, Qld/NT: 18%, SA/WA: 8%

Mortgage Wisdom Year established:

Specialist Mortgage

Number of company employees

1994

11

Year established:

Number of company employees

1991

14

Head office location: States/territories operating in:

Head office location: States/territories operating in:

Wollongong Number of lenders on panel:

Subiaco, WA

40+

Number of lenders on panel:

NSW, ACT, VIC & QLD

39 residential, 25 commercial, 15 HP/chattel finance

Senior management team:

3 CEO David Smith, general manager Graeme Haney, national development manager Nick Creagh; Company directors: 3 Brian Hastings (chairman), Steve Troughton & David Hartley Industry association membership:

MFAA, COSL & FBAA Average settlement volume by broker:

Size of residential loanbook

08/09

$2.5bn

Size of commercial loanbook Annual residential loan settlements

Broker breakdown by state:

n/a

William Lockett (managing director); Steve Ayris (BDM); Paul Hansberry (product & compliance manager); Richard Bland (state manager for NSW/Vic/Tas/Act/Qld/SA); Cathy Wallace (finance controller/group accountant); Company directors: William and Janet Lockett Top: Brian Hastings Above: William Lockett

MFAA, FBAA Average settlement volume by broker:

$11.9m Loanbook and Broker Statistics

$500m+ (YTD)

Annual commercial lending settlements Number of loan writers/brokers

Senior management team:

Industry association membership:

$750,000 Loanbook and Broker Statistics

WA, Vic, NSW, ACT, Qld, Tas, Singapore, Hong Kong, Dubai, London

90

08/09

Size of residential loanbook

$6.75bn

Size of commercial loanbook

$93.5m

Annual residential loan settlements

$1.97bn

Annual commercial lending settlements

$37.2m

Number of loan writers/brokers

168

Broker breakdown by state:

Broker breakdown by state: NSW: 91%, ACT: 1%, VIC: 4%, QLD: 3%

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Broker breakdown by state: WA – 54%; NSW / ACT – 22%; VIC – 15%; Overseas – 3%; QLD – 3%; SA – 2%; TAS – 1%

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Superbrokers

sponsorship funding – all of which have reduced due to both declines in business and cost cutting by lenders,” he says. “Many of these aggregators have struggled to realign their expenses with the significant reductions in revenue that they have, and will continue, to face. Many have had to consolidate and cut staff, which affects their service to brokers.

Another significant threat is the management of commissions, Haron adds. “With a number of lenders now adjusting commissions monthly, quarterly and bi-annually based on group performance, some aggregators haven’t been able to keep up and even advise their brokers of commission changes. Just as importantly, they aren’t providing brokers with their individual reports from the lenders so the brokers can verify the accuracy of the bank score of their performance in relation to conversion and quality.”

National regulation also came up as hot topic.

Most aggregators listed the new rules as “an opportunity” for the industry, but finconnect’s Sale warned that aggregator groups need to ensure the regulatory structure is effective and not “overzealous”.

LJ Hooker Financial Services Year established:

Number of company employees

2004

5

Head office location: States/territories operating in:

Sydney Peter Bromley

Australia and New Zealand

Number of lenders on panel:

28 Senior management team:

Alan Lambert (chairman), Peter Bromley (general manager) Industry association membership:

MFAA (Full Member), PLAN Australia *LJ Hooker is a sub-aggregator of PLAN Australia Average settlement volume by broker:

$10m p.a Loanbook and Broker Statistics

08/09

Size of residential loanbook

$2.9bn

Size of commercial loanbook

$0.13bn

Annual residential loan settlements

$1.2bn

Annual commercial lending settlements

$50m

Number of loan writers/brokers Broker breakdown by state:

Broker breakdown by state: Qld: 31%, NSW: 38%, Vic: 6%, Tas: 4%, WA: 7%, SA: 5%, ACT: 7%

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Opportunities As mentioned, a number of aggregators praised the implementation of national regulation.

“Ironically the introduction of the national credit bill and licensing comes at a time when major banks are dominating the current market for home loans and this in itself will help the broking market significantly as clients look for independent, impartial good professional advice,” says Choice CEO Brendan O’Donnell.

Haron says it is a chance for the broker industry to gain legitimisation in the eyes of consumers: “We are entering an era of increased regulation for the industry which will enhance the professional standing of brokers. As we take this step, brokers will look to their aggregators for a more professional service, even if it’s simply more detailed commission reports with a greater level of accuracy and flexibility and which incorporate arrears and discharged loans. Brokers will want systems that enable them to improve the client experience, both during the application process and after settlement. These same systems should also provide all the compliance templates, documents and record-keeping capabilities to assist brokers with the heightened compliance requirements in a more regulated industry.”

National regulation will not only improve brokers image, but also their service proposition to clients, says Rampal. He adds that the reduction in broker numbers means more business for the brokers that survived the credit crisis.

“Our industry has undergone some significant restructuring over the past couple of years, well ahead of the rest of the economy. This means that we are likely to be well-placed for growth as the economy picks up. In particular, with the exit of many brokers from the industry in the past 12 months, those remaining are facing less competition to gain new clients,” he says. “Most brokers are also upskilling their teams to provide insurance, financial planning and commercial loans to their clients. This diversification of income will not only protect them in tough times but also allow them to earn more from each client.”

LJ Hooker’s Bromley says aggregators should be placing more emphasis on training brokers in order to maintain a high standard of service.

“Brokers should be working towards streamlining their processes to ensure a stronger quality with conversion and submission. Generally, the focus should be on highlighting the value proposition of using the third party channel instead of banks.

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Superbrokers

“Another opportunity that presents itself is the need to diversify the industry’s core offering, creating more integration between the brokering channel and financial planning/insurance products. This is yet to be implemented correctly within the industry and is an initiative LJ Hooker Financial Services has already begun trialling.”

Loan Market Group’s Kolenda says there is a greater opportunity for aggregators who invest more heavily in the range of services that they offer their members and operate as a team.

“These groups are able to work towards the upper tiers of the lender commission schemes as they get more buy-in and provide more support.

This broader support team will also be critical in the successful implementation of the approaching licensing regime.”

Another area of opportunity for aggregators is the generation of new business opportunities through leads and referral partners, Kolenda says.

“Over the last few months we have seen a dramatic increase in enquires from brokers looking for the value created via lead generation.

Aggregators will need to support brokers further through a range of initiatives including investment in lead generation, training, and increased investment in the online environment.”

Smartline’s Acret made a point regarding commission linked to quality: “As per national regulation, for the good aggregators who invest in systems, support and training, this link of commissions to quality is an opportunity.”

Some aggregators stressed their unique position in the changing environment.

“More and more of the general public will turn to who they trust in this environment and that is the likes of their accountant, financial planner, lawyer, etc. This is the market where finconnect sits – so what an opportunity this brings to the table,” Sale says. “finconnect’s strategy is to be the preferred aggregator for the professional sector. We see the current economic climate as a great opportunity for the professional sector to really make their mark in this arena. The current environment has seen an exodus of mortgage brokers from the industry, which we believe is a good thing overall, as it means they did not have the necessary structures in their business to sustain a downturn. finconnect for some time now has been promoting additional income streams to supplement our member’s core business.”

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Delays Lender service delays remain a sore point with many in the industry. In MPA’s Brokers on Banks survey published in issue 9.6, brokers’ anger over approval/turnaround times was evident in both the comment section and the results. Many want to know what their aggregator is doing to present their concerns to major banks.

Lawfund says it is attacking the problem on several fronts. “There are many and varied approaches we are taking, starting with speaking to the state manager of that lender, in some cases either myself and or Andrew [Russell] will get involved, and where required we will escalate our conversations to a national level,” says Michael Keating, national aggregation services manager.

“Unfortunately most lenders say the delays are caused by the broker. Two about that: we won’t go into bat for them in that case; and we are firmly of the opinion that a poorly presented deal should be taken out of the ‘system’. The professional broker deal continues along the process quickly, so everybody wins. It’s very frustrating, and sometimes it can be very difficult to get anything out of them. Six months ago if we said this was not good enough to a state manager it would have been fixed within hours, and I would have rarely referred to national manager, but now it is common place, and up to twice a day.

“However, we can expect that service levels will return to some normality as demand slows when the enhanced First Home Owner Grant runs its course, combined with the tightening of credit regarding genuine savings and decreased max LVRs,” Keating says. finconnect also expressed its exasperation in trying to overcome service delays. Sale says each day is filled with finconnect BDMs trouble shooting, escalating transactions, dealing on behalf of its members with channel conflict and assisting members with using technology to enhance their processes. “finconnect is educating members about the lender service delays through our online weekly newsletters. finconnect has also run workshops and online webinars training the members to submit applications that are error free, so that they do not contribute to the delays or re-working of applications,” Sale says.

Commissions This time last year, the broker industry was reeling from the sudden announcement of

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Superbrokers

commission cuts and restructures. While many fear reduced competition and an over-reliance on the major banks could spell further deterioration of commissions, Mortgage Choice maintains that there hasn’t been any talk of cuts. “We have not heard any whispers from the 23 lenders on our panel around further commission changes,” it said.

Lawfund, however, speculated that the only constant is change. “The big guys may reduce the commissions again or they seem to be continually changing the benchmarks. They introduce a benchmark, we reach it and then they change it – that is good and bad. We feel if the benchmarks are met and their systems are good then the profitability from a broker loan will be far superior to what they are going to achieve through the branch. Unfortunately though the broker reward for introducing this business to a major is diminishing,” Keating says.

Connective maintains that whatever commission changes banks impose, aggregators will have to be able to back up brokers to make sure they are getting everything they are owed

“Commissions will continually be reviewed and the only changes I expect, and would find acceptable, will be in relation to individual broker performance e.g. conversion, quality and loan life.

What we have learnt though is to ensure there is accurate, detailed and timely reporting we can then provide to our brokers for them to verify and challenge if necessary,” Haron says.

Who’s left?

The other moving target is how many aggregators will remain. The mortgage industry has seen some players merge and others get swallowed up by bigger organisations. Almost all aggregators agreed we haven’t seen an end to consolidation.

“We believe aggregation models will be tested in the current environment. Regulation and economic pressures will require aggregators to have scale and infrastructure in order to be financially viable. There is always room for boutique businesses. Those businesses without a clear and powerful value proposition will be in trouble,” says Ray Hair, CEO of PLAN. MPA

brokernews.com.au

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Feature

re-accreditation fees

aggregators on the fee factor The prospect of paying reaccreditation fees has left brokers wondering how aggregators will react.

MPA looks at the impact reaccreditation fees will have

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W

hen Westpac announced it had entered into discussions to set a broker “reaccreditation fee” the comment board on Brokernews went crazy.

Some brokers expressed their disgust: “Can someone give me a bucket as I need to throw up, just when you think they have shafted us enough to date they come up with this rot. It just makes me shake my head in disgust, as these morally bankrupt assholes continue to extort the absolute maximum out of anybody they can, as often as they can.”

Others wrote supported Westpac’s initiative.

“This is good news for me – it stops people ambushing good competitor offers when it suits them and blocking the pipe for those brokers who provide support. Isn’t this a bit of give and take?”

Westpac’s announcement followed shortly after the introduction of its new mandatory accreditation requirements.

Under the new accreditation system, which came into effect 1 May, brokers who wish to retain their accreditation with Westpac are required to settle at least one loan with the lender every six months.

New brokers are required to submit one loan in the first three months from the issuance of their ID number.

Brokers who do not meet the mandatory deal lodgement criteria were told their accreditation would be cancelled and those who wished to recommence writing business with Westpac would need to complete a re-accreditation session which incurs a fee. At the time of writing, Westpac was still in negotiation with its key business partners and other stakeholder to determine the appropriate fee.

Westpac is not alone in its decision to introduce an accreditation fee. CBA announced in late June it was introducing a $500 reaccreditation workshop fee for brokers who do not meet minimum submission requirements. To meet the new policy, brokers are required to submit a minimum of four home loan applications and settle a minimum of three home loans in a six-month period, as well as meet benchmarks on submission quality, conversion rate and arrears rate to keep their accreditation.

While the announcement was bound to spark comment from brokers, many wanted to know where their aggregator stood on this. ‘Dennis’ wrote: “When are the aggregators going to combine their strength and support the brokers against the majors? If the top five aggregators collectively told Westpac not to do this to brokers or no business will come their way, then I’m sure you would find they would change their way of thinking – especially for their shareholders.”

Dennis’s cry was met by Brokernews’ infamous “Ozboy” who retorted: “Aggregators are clearing houses for information – that is all they do. If you think they are on your side as a broker you will be very disappointed. The lenders forced everyone to join aggregators so the aggregators are only around because of lenders and they are smart enough to know it. Now if only brokers could get their head around that fact then they will stop getting disappointed when they ask their aggregator to push back against the lender.”

Response The Loan Market Group’s executive director John Kolenda says re-accreditation fees will result in increased administration for all parties.

Feature

re-accreditation fees

“Yes, it will cost more in terms of resources and these will create additional cost to the aggregators,” he says, adding that while retail aggregators will more than likely not pass these costs on, those operating on low-margin models will pass them on.

His point is echoed by Lawfund’s national aggregation services manager Michael Keating who says: “The re-accreditation process in many instances is not workable because it takes too long to do and costs too much money. In the time it takes for a lender to process the administration involved in re-accreditation, it can take so long that the product could be pulled and the broker loses out on all fronts.”

While Keating says Lawfund understands why the lenders are doing it, he adds: “it creates huge problems for a broker when they are not able to offer a product which might suit the client

“ Brokers shouldn’t be penalised for not submitting loans. This policy forces brokers to restrict their lending panel ” –Kym Rampal, Loankit better. It is the lenders, of course, who also miss out in this situation.

“Our concern is that these proposed initiatives promote the practice of brokers working within a smaller sub-set of lenders which is against the broking proposition,” says Kolenda. “We think that the lenders will have to look closely at how these activities influence lender selection.”

Mortgage brokers are supposed to provide borrowers with choice, but will re-accreditation fees limit the choice they give consumers?

Under the National Consumer Credit Protection Bill brokers have an obligation of disclosure. Credit service providers must supply potential borrowers with a credit guide that includes a panel of credit providers and the commissions the credit service provider gets.

Should brokers disclose to consumers that they have an obligation to file a prescribed number of loans to certain lenders in order to maintain their accreditation?

“We strongly object to this as it impacts the whole broker proposition,” said AFG’s executive director Kevin Matthews. “It forces a broker to concentrate their activities on two to three lenders rather than focusing on what is best for the customer. It is also our belief that if a member of ours is doing all the right things to maintain their AFG membership, then they should have the right to deal with the lenders AFG has contracts with.”

Loankit’s managing director Kym Rampal says the issue of re-accreditation fees does not directly affect aggregators. “Brokers shouldn’t be penalised for not submitting loans. This policy forces brokers to restrict their lending panel,” he says. “When lenders claim that this is to restrict their best products to only the most ‘professional’ brokers, they are confusing professionalism with a bias towards their own products.”

But not all aggregators see problems in banks charging a re-accreditation fee. Finconnect general manager Tanya Sale says its brokers will not be adversely affected: “If our members decide not to get themselves re-accredited, they can refer loans to our lending managers who can write the lending transaction on their behalf.”

And according to LJ Hooker’s general manager Peter Bromley, the re-accreditation fees will force aggregators “to place more emphasis on training on product knowledge to help improve the service that brokers provide to limit these fees being implemented.”

He also believes sending business to the majors is better for consumers: “Implementing these policies will create a greater alliance within the industry and again drive business through to the major banks as brokers try to find avenues to not pay re-accreditation fees. This would see more brokers using the major banks as they can offer more products and options.”

Mortgage Choice CEO Michael Russell also puts a positive spin on the re-accreditation fees saying they will “sharpen up the performance of many through necessity.” PLAN CEO Ray Hair believes the fees could be a positive for top brokers. By introducing volume requirements, banks would be able to concentrate on brokers who are more familiar with their products. This would benefit top brokers whose quality metrics are currently being affected by member brokers with poor performance records, Hair says. MPA

John Kolenda

Kym Rampal

Michael Russell

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Feature

corporate gifts

presents of mind It is easy to give in good times, but commission cuts mean brokers have to think smarter when it comes to clients’ gifts

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I

n Japan, gifts should be offered and received using both hands. In Singapore, it is considered courteous for recipients to graciously refuse gifts three times before accepting gifts.

And in Malaysia you would not give a gift to someone until you have established a relationship with them.

While other countries have firmly established gift-giving cultures, there are few hard and fast rules in Australia.

For many mortgage brokers, offering clients a gift upon settlement or to mark the anniversary of their loan serves a dual purpose: it gives brokers an opportunity to both thank clients and strengthen the relationship.

“There are a lot of benefits,” says Paul Morton, director of PDM Property Finance. “We do it just to look after our customers, but it goes a

long way towards establishing new business – and we always get referrals from it later on.

We’ve found it to be a good marketing tool.”

Time for giving Many brokers like to give clients a gift upon settlement. Morton provides his clients with a hamper, which generates a positive response.

“With the hampers, people are thankful and surprised and we always get calls back. If you’ve had a good run with the banks, it settles on time and everyone is happy, then it’s a good way to finish off the transaction. And in the current times, it’s a good way to smooth things over if it hasn’t been timely.”

Morton also rewards his top 50 clients by throwing an annual cocktail party before Christmas or just after New Year. The catered

Feature

customers for life

affair, complete with string quartet generally sets him back between $3,000 and $4,000 – but he says the benefits are worth it. “People seem to enjoy it and we do get spin off from it. It’s been a very effective way of marketing really.”

Karen Egan, principal of Club Financial Services in Gippsland, rewards clients upon settlement with a ‘thank you’ letter and a fridge magnet or key ring. Clients who do large multiple loans through her brokerage receive vouchers either to a restaurant in their area or an accommodation voucher. “These vouchers are personalised, and it is our way of saying thank you for their continued support,” she says.

Egan makes contact with clients after two months of settlement to ensure they are happy with everything and again on the first anniversary of their loan. Clients also receive birthday and Christmas cards with a calendar.

Clients who regularly refer business receive movie tickets, or personalised bottles of wine.

Sarah Eifermann, principal mortgage planner of SFE Loans, also rewards clients when they refer business. Currently she sends clients a hand-addressed thank you card in the mail with a scratch ‘n’ win ticket.

“It’s just to reward their behaviour. It’s not an expensive scratchie, but everyone likes them. And the more leads they send me the more scratchies I send them. So it’s pretty simple,” she says.

“It’s more about making people feel important and making people feel valued for their efforts.

And by sending them a card in the mail that’s branded SFE Loans, I kill two birds with one stone – I’m giving them a gift, reinforcing the brand and rewarding their behaviour.”

And just think of the marketing benefits should one of her clients actually win some top prize money, she adds jokingly.

Paul Morton

Rob and Karen Egan

Sarah Eifermann

Cost of giving There is some truth to the adage that you have got to spend money to make money. But the recent commission changes have affected every broker’s bottom line.

Egan has never had a set budget for gifts, but prefers to send something in line with the quantity and quality of referrals received – somewhere between $150 and $200 per voucher

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corporate gifts

for large multiple-loan clients. But reduced commissions and the increased costs of doing business have forced her to cut back.

“Referral sources are now thanked on a yearly basis, not for each individual referral,” she says.

Eifermann agrees that it is very difficult to spend money on gifts, especially for new brokers who do not have a large trail commission base.

“Trails have been cut and that’s your lifeblood, I can’t afford to go out and spend $400 a month on gift magazine subscriptions,” she says. “I value my clients, and I wouldn’t have any income without the loans coming through, but at the same time with commissions being cut I just don’t have the spare funds available at this point in time.”

As a result, Eifermann is considering cheaper alternatives. She is hammering out a deal with a small cosmetics company that is looking to grow its database. “I’m looking at rewarding clients with a free facial and a $20 voucher – something that would help grow her cosmetics business at the same time.”

Kathy Crawford, director of Australian Mortgage Assist, utilises a similar reciprocal agreement that Connective has set up between its brokers and Residex to reward clients.

Under the deal, Crawford is allowed to distribute 40 vouchers for property reports valued at $75 each to her clients. Crawford sends the gift certificates to clients who have not changed their borrowing in two to three years.

“We may do a mail out to those clients with a gift certificate saying ‘do you know what your current property is worth in today’s market? With all this uncertainty we can provide a free update for you valued at $75’. And the client either takes that up or they ring us and say ‘we’ve got a friend who is looking at consolidating loans or refinancing’. Then they give their friend this gift certificate, and that generates another lead for us and more business.” But Crawford considers the Residex vouchers to be more of a marketing tool than a gift. When it comes to rewarding clients for settling a loan she prefers to give them something that does not come with a price tag.

“If someone is settling on a purchase we actually offer to pack a box. I believe that you

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can’t put a value on time – something everybody is short of. So if you can give a new client an hour of your time and do something to help them move then that’s better than gift, because you’ve actually given up the most valuable commodity that you have.”

And with clients who refinance, Crawford will offer something a little different, such as getting the lawns mowed or the hedges trimmed. “And nearly every one of them has taken us up on that, would you believe it?”

If she does actually buy something for a customer, it is generally a plant and she will physically go to the house and put it in the ground for them.

Reward enough Not all brokers believe gifts are necessary. Otto Dargan, director of Dargan Financial, says his customers receive the gift of continued good service. “It’s something we used to do, but because we’ve been so busy lately it’s been put on hold. I’ve found that regular contact is probably the best method to improve relations. I don’t think incentives are necessary.”

Jeana Scott, director of Altitude Financial Group, does not give settlement gifts unless something has gone amiss in the loan process. “In general I don’t normally give incentives. As far as I’m concerned it’s my service that counts.” mpa

Kathy Crawford

Jeana Scott

culturally sensitive Certain gifts are culturally inappropriate. In Australia, a gift of flowers is nice, but a dozen red roses seems a little weird. And in an increasingly multicultural society, brokers should take the time to make sure their gifts are received positively. Muslims do not drink alcohol, so gifts that contain alcohol such as perfume would be inappropriate. Shellfish and pork would also be inappropriate for clients who are Jewish or Muslim. For Hindus the cow is sacred, therefore leather or food products of this nature should be avoided.

PDM Property Finance director Paul Morton employs a local woman to create tailored gift baskets for his clients. Some packages may be filled with chocolate, whereas others might contain special teas – depending on the client’s taste.

“We put a bit more thought into it,” he says. “We try to make it more personalised, and spend a little bit more money to do it right.”

MPA Top Commercial Brokers 2009 Call for submissions

Brand yourself as one of the industry’s top performing brokers!

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13/07/2009 9:43:32 AM

Column

e-marketing

Effective e-newsletters Finance Tools’ Sam Benjamin shares the essentials of effective online marketing for mortgage brokers. This issue’s column looks at how to create an attentiongrabbing e-newsletter

see the interview live Sam Benjamin breaks down the ingredients of a successful e-newsletter campaign. View his tips on Brokernews.com.au/MPA

M

arketing to your database is fundamental for any business. Your database should consist of not only names and addresses of clients but also personal information that helps you to target your marketing effectively. Having this information will allow you, with some forethought, to focus your marketing on each niche within your overall database. This will ultimately produce more tangible results for your business.

If the expression ‘keeping your database warm’ means little to you, please read on. Part of getting repeat business from your existing clients is to ensure you are always remembered by your clients. After all, if they do not remember who you are, why would they call you?

In order to stay at the front of mind with your clients and be the first person they think of when they need a loan, or help with their finances, you need to regularly keep in contact with them. One of the most effective ways to do this is with e-mail marketing. While e-mail marketing may not be a new idea, it remains the easiest, quickest and low cost form of marketing to produce and distribute for any business – and most importantly it works.

Creating, designing and writing the newsletter The newsletter should be designed well. It is going out to your database of clients and to your prospective clients or leads. You want it to represent you and your business in the best possible way. So if you are an expert in Low-Doc Fixed Rate Loans and not HTML, outsource this aspect of the process. Using HTML e-newsletters allows you to add colour and branding to your newsletter and creates newsletters which are visually appealing, which will increase the chances that your e-mail will be read.

Content should consist of a few articles which are written concisely. Be short, sharp and punchy.

Make sure the articles are easy to read and do not overload them with terms and phrases which the reader may not understand. People do not have a lot of time these days to painstakingly read every e-mail that comes their way and will quickly skim over the content to decide whether it is worthy of their precious time.

Be sure to include articles that are relevant to the reader. The reader is only interested in what

you can do to solve their problems, not how great you and your staff are. So keep the content focused on them rather than you. But remember to have your contact details easily accessible. After all, client contact is the goal of the campaign.

Having an option within your newsletter design to allow the recipient to forward the newsletter on to a friend is also an effective tool and should not be overlooked. It is much easier for someone to click a link and forward your contact details to a friend they know is looking for a loan, than to actually take the time to speak to that person. This is a simple option which makes it easier for clients to refer work to you, thus growing your business organically.

Scheduling and sending the newsletter If you have a small database you may choose to send the newsletter directly from your e-mail client such as Outlook, but we do not recommend this. Using software designed solely for the purpose of sending e-mail newsletters may better suit the task even if you are only sending out a few e-newsletters. With purpose built e-mail marketing software you are able to ensure the e-newsletter campaign contains links back to important pages on your website. This helps to drive traffic to your website and will also inform the recipient of other services you may offer.

Another of the main advantages of using purpose built e-mail marketing software is the ability to track the e-mail campaign statistics.

Plus, the software should also ensure your newsletter is compliant with the Spam Act. This may seem like a lot to cover! I didn’t say this was supposed to be one of the easiest forms of marketing. Well, don’t be overwhelmed, take it one step at a time and remember it is better to be doing something rather than just thinking about it. The trick is to get started.

Sam Benjamin works for Finance Tools. To contact Finance Tools visit www.financetools.com.au or call 1300 300 790

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websites

Web reviews

MPA’s web expert Sam Benjamin reviews what’s hot and what’s not on your screen…

Financeezi.com

Nrmacarloans.com.au

Design The structure of this site is messy and not at all aesthetically pleasing. It appears that there has been no thought put into the design layout. The links to the menu are just text with no clear indication that they are menu buttons. Adding a rollover effect to this text would indicate a link when the user’s mouse hovers over it; a simple adjustment. In addition, some of the internal pages have a completely different menu to other pages. This is the biggest 'no-no' when building a website, as it can confuse and frustrate the user.

Design This is a very neat, clean and well structured site. This is achieved via the use of simple colours in keeping with the brand and very few elements within the site (think Google).

Navigation and usability This site is very easy to get lost in as there is no site map or static menu on each page. Additionally, as you move through the site linked pages open up with a completely different layout and design.

It is important to think about the purpose of the website for the business and decide on a design.

Content This site is made up of a .com and .com.au site. The .com site links to the .com.au site but not vice versa. Generally, a .com domain extension can hint at the business being non-Australia based.

Without an ‘About Us’ page it makes it very uncertain for the user to know who they are actually dealing with.

Suggested improvements Sometimes it is better to have no website at all rather than one that is going to damage the reputation and credibility of a business.

Putting up a site with little design planning or thought can lead to this occurring and here we have a perfect example of just that!

Rating

Sam Benjamin works for Finance Tools. To contact Finance Tools visit www.financetools.com.au or call 1300 300 790

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Navigation and usability A static menu makes the navigation very easy. A good website is one where the user can find what they are looking for quickly and easily, and which marries this with the goals of the business in establishing the site. This is achieved here via the use of quicklinks to the ‘apply online’, ‘call now’ and ‘calculators’ pages. The font used throughout the site and text colour of that font is very inviting to read and easy on the eye. There is consistent use of heading/body font styling which aids in the user understanding and using the site.

Content There is sufficient content to satisfy the user without being overwhelming. This ties in well with the simplistic design. The user can easily contact the business to find out more as details are readily available.

Suggested improvements When deleting menu buttons, you should also delete the space previously occupied by that button. The flash banner, which advertises the latest offer, does not link to a page providing any interested user with more information and potentially leading to a sale/lead for the business.

Rating

mpa lender news

contents 54 A review of news in the world of non-bank lending and mortgage management 58 In profile: Provident Capital 60 Opinion: Should aggregators be doing more to support non-banks?

mutuals adopt new code Louise Petschler

Credit unions and building societies have developed a revised code of practice which reinforces rules of responsible lending.

New areas of the Mutual Banking Code of Practice include: only lending to members what they afford to pay back, and aiding members with financial difficulties; ensuring exception fees are ‘reasonable’; implementing fair terms and conditions for products and ensuring members are fully aware of fees and charges; and providing members with access to advice and dispute resolution services.

The code was developed by the industry body Abacus, in consultation with industry, regulators, consumer groups and members.

“The Mutual Banking Code of Practice is an initiative that plainly sets out the responsible and ethical lending practices of credit unions and mutual building societies – and this will further cement the already high customer confidence and satisfaction ratings of credit unions and building societies”, said Louise Petschler, CEO of Abacus.

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BMM targets first homebuyers Better Mortgage Management is tackling banks on products and service with its new non-genuine savings product aimed at first homebuyers.

The minimum 10% deposit can comprise entirely of the grant or other equity not considered genuine savings.

Major lenders have tightened credit policy in recent months requiring borrowers to have at least 3% genuine savings for loans up to 90% LVR. BMM’s Freedom NGS 90 loan has an interest rate of 5.79% (correct at the time of going to print), and provides borrowers with mortgage reduction features such as a 100% offset account (with Visa debit card) and optional line of credit facility.

The mortgage manager is also offering construction and vacant loan loans at 90% LVR. Mortgage brokers receive upfront commissions of 0.70% and trail commission of 0.20% built into the customer rate of 5.79%.

BMM managing director Murray Cowan said mortgage brokers and their customers can also expect higher service levels at BMM than they would experience with a bank.

“Because mortgage brokers are dealing with a mortgage manager which specialises in servicing their needs and the needs of their customers, they will delighted by the speedy turnaround times and level of personal service we offer,” Cowan said.

“We deliver services designed specifically for mortgage brokers, with an easy-to-use 24/7 loan tracking system which keeps the broker in touch with an application through the whole process.

Plus, we provide the flexibility of no minimum volume requirements.”

Murray Cowan

mpa lender news

Majors take more market share For the first time, the AFG Mortgage Index for May provided a table showing the relative market shares of bank versus non-bank lenders, sourced from ABS statistics.

This shows that since the second quarter of 2007, banks increased market share from 79.7% to 92.5% of the market. The dramatic reduction in lending competition has been especially pronounced in the past year, with non-bank lenders seeing market share reduce from 15.5% in the second quarter of 2008 to just 7.5% in the first quarter of 2009.

Opportune launches ‘one-off’ commercial loan Opportune Home Loans launched a 20-year commercial loan which allows borrowers to provide one-off financial information to their lender at the beginning of the loan.

The product is unique in that under many commercial loans, borrowers have to continually update their financials.

“Opportune is providing clients with a specific tailored commercial offering as part of our product suite,” said managing director Paul Ryan.

“Once the loan settles the customer can get on with their loan. Unless a problem arises, we won’t be asking for up-to-date financials which are often required under some commercial funding arrangements.”

The Opportune Commercial Loan is similar to the company’s home loan products in that borrowers can choose between principal and interest or interest only for the first five years on a 20-year loan term.

This new product is for Commercial Loans up to $1.5m and has a variable interest rate of 7.24% It has a maximum loan to value ratio of 70%.

Pepper Home Loans saves tennis star Tennis star Mark Philippoussis has been thrown a lifeline by Pepper Home Loans, which has decided to use hardship assistance to help him keep his Williamstown home.

Pepper Home Loans, which was acting on behalf of GMAC, had launched a court action to take his house and recover a $1.3m mortgage, but decided to use hardship provisions to aid the Scud.

“The last thing we want to do is repossess anybody’s property,” David Holmes, CEO, told media.The 32-year-old Wimbledon and US Open runner-up is working with the non-bank lender to clear some of his financial issues under a ‘hardship arrangement’. Philippoussis said he had been living the high life before it all came crashing down.

Sandstone Special Report

End to End Lending Transformation We all use buzz-words to describe newly discovered solution development and implementation processes, but what does this all really mean? Does the lender really want to automate their current processes to achieve better outcomes; or are they looking to revisit their lending business to determine new approaches to packaging and delivery of products to their customers?

You should consider your e2e lending transformation from the viewpoint of how you want your customers to view your organisation. Do you want to deliver complex combinations of product features allowing your customers to see your organisation as being all things to all people, or are you focused on simplification – delivering simple products targeted at meeting a specific need?

If you choose one or the other, how do you address the threat of competition? In the case of mortgages for example, it may be better to offer a fully featured product with the option of turning unwanted features off rather than the other way around. This approach would fully exploit the principles of consistency of process and re-use of features that seem to be on most wish-lists.

Simplify your approach to delivering the product or service to your customers by examining your distribution channels and the processes involved in the loan application, assessment, fulfillment and servicing components. Analyse the current state of play, simplify your processes and where practical leverage off tools that are readily available in the marketplace. Why start from the beginning when working solutions have been implemented be several lenders with skills derived from these implementations residing in third party organisations.

When you have defined the ‘current’ and ‘aspirational’ states respectively and identified low cost quick wins, you can then embark on delivering the quick win benefits whilst defining and assigning the longer term program benefits. The benefits need to be aligned to the costs and the program must pay back – otherwise there is no benefit in transformation. The business must own the benefits and agree to the costs involved in achieving them. You can then start to build the actual transformation program with deliverable outcomes, dependencies, milestones and costed effort.

Typically, the average acquisition cost for a mortgage is about $1,000 however this figure can be reduced by at least half.

Transformation benefits and associated cost reductions can be delivered in terms of interview time, front line staff effort, provision of an unconditional offer at first interview, a reduction in elapsed time for settlement and, in the case of existing mortgagees, the ability to top up their mortgage “on line” with minimal intervention from the lender or its staff.

In future articles we will look at; how you can partner with us to transform your lending platform, the common mistakes / pitfalls you can avoid from our lessons learned, a typical transformation program overview, the common obstacles to successful lending origination process transformation and how to overcome them.

By Martyn Beer: General Manager, Lending Solutions – Sandstone Technology

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MFAA applauds govt interest in non-banks Reports that the Federal Government is examining ways to bolster the non-bank sector were welcomed by the MFAA. The Treasury announced it was preparing options to make it easier for regional banks and non-bank lenders to access funds, thereby increasing competition in the marketplace.

“Australian consumers have, over the last decade or so, benefited demonstrably from the competition provided by non-bank lenders in the mortgage market,” said Phil Naylor, CEO. “Interest rates were probably two percentage points or more lower than they would have otherwise been, and a far wider range of products was available for borrowers. However, that has all but disappeared with the collapse of securitisation.”

Reserve Bank data shows that the difference between its cash rate and the standard variable rate charged by the major banks is increasing for the first time in nearly 20 years – this is not good for homebuyers, Naylor added.

The government invested $8bn in mortgage-backed securities – which Naylor described as “a welcome kick-start” – and is reportedly considering expanding this program to $30bn.

“I appreciate the government’s recognition that more needs to be done. Government intervention in the market is not ordinarily welcome or appropriate, but in such extraordinary times – when it’s clear that the Australian lending market is no longer operating competitively to the benefit of borrowers – it’s appropriate for the government to intervene with steps to improve competition,” he said.

$4.5bn the amount credit unions gained in deposits in 2008/2009 financial year, reflecting 13% growth

Rate announcements meaningless: Resi Consumers are “tuning out” official rate announcements by the Reserve Bank because they know there is no guarantee major banks will pass cuts on, says Resi Mortgage Corporation.

“At the moment there is a wait-and-see approach being shown by the Reserve Bank and as a result most borrowers are not holding their breath anymore,” said Lisa Montgomery, Resi’s head of consumer advocacy.

Montgomery predicted the central bank would only cut rates by increments such as a quarter of one per cent in an attempt to get banks to pass rate relief onto borrowers.

“But for the meantime, what we are now seeing is most borrowers buckling down and reviewing their financial structure based on what cuts have been currently delivered – and that’s really the best strategy they should be adopting,” she said.

NZ issues guidelines for non-banks

non-banks vital in US: Citi Non-banks are necessary to economic growth in the US, but the sector needs greater regulation, said Citigroup chief executive Vikram Pandit.

Without an alternative lending sector economic growth would be stunted by one-and-a-half percentage points, he added.

But uniform regulation of the entire banking system, including non-banks, is necessary, Pandit said.

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92.5% the percentage of business brokers are sending to the major banks

The Reserve Bank of New Zealand released draft risk management guidelines for non-bank deposit takers in an attempt to improve supervision of the sector.

Measures outlined in the proposal include requiring non-bank deposit takers to have a credit rating from March 2010 and requiring them to have risk management plans from September 2010.

The risk management plans must be in writing and identify ways of managing various risks, such as credit, liquidity, operational and market risks (which includes interest rate risk, foreign currency risk and equity risk).

In addition, the guidelines specify non-banks conduct regular reviews of risk management programs.

business Profile lender

niche player In an ever-shrinking market for low-doc and non-conforming loans, Provident Capital remains one of the few lenders focused on these market segments

P

Business file Provident Capital Group + Established: 1990 + No. of employees: 40 + Head offices: Sydney, Brisbane + No. of brokers accredited: 5,000 + Key fact: Through its debenture program alone, Provident Capital has managed over $936m in mortgages

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rovident Capital has always operated in a niche area.

But ever since James Symond pronounced the death of low-doc loans last October, the non-bank lender’s offering has become even more unique in a risk-adverse lending climate.

Provident Capital, which specialises in low-doc, non-conforming products solutions, commenced operations in 1990 with an initial focus on financial planning, mortgage broking and insurance work.

But as its financial planning business developed and the mortgage-broking business grew, the natural evolution was to satisfy the needs of investors and borrowers via an expanding private mortgage-lending division.

As a result Provident Capital Limited was created in 1998, replacing its private mortgagelending division with a debenture funding model, which was later supplemented with wholesale funding facilities in late 2007.

The financier’s key value proposition to brokers is lending in the low-doc, non-conforming market across all the major asset classes – residential, commercial, industrial, rural and rural residential.

And as major lenders tighten credit policy, Michael O’Sullivan

business profile lender

mortgage insurers increase low-doc requirements and the number of reliable suppliers of low-doc, non-conforming loans contract, Provident Capital’s business and position in the market has become more unique.

Managing director Michael O’Sullivan says Provident Capital has always seen itself as one of a few ‘finance company’ operators with an understanding of the market they operate in particularly the ability to understand and price risk.

While the majority of non-conforming lenders have either left the market or gone into ‘hibernation’, O’Sullivan says Provident Capital has been able to position itself well with its continuity of funding and by keeping its reputation and brand intact. He says recent market issues have only enhanced its position as a provider of what he calls “innovative non-bank mortgage finance”.

Late last year, Provident Capital tightened its own credit policies, but a growing confidence in the market has encouraged it to loosen policy and expand its product offering.

The non-bank has relaxed a number of its products’ key features, including increasing maximum loan amounts to $1.25m, increased LVRs for commercial, industrial and rural lending, and relaxed credit criteria on additional security required to certain asset classes.

“We will also be launching a short-term lending product designed to bring reliability and reputation to a market otherwise dominated by fringe operators. The funding will be limited to borrowers able to demonstrate a definitive takeout,

debentures

biography

Debentures are fixed interest securities which have a maturity date and a specified rate of interest. The assets of Provident Capital, Australian-first registered mortgages and all other assets, are charged against the debenture issue.

Provident Capital’s managing director Michael O’Sullivan has been with the group since its inception in 1990.

His experience includes private mortgage lending, balance sheet lending and securitisation.

Sullivan previously worked as managing director for First Pacific Corporation Ltd. and has been an authorised representative for Securitor Ltd and Colonial.

He holds a MA in Personal Financial Planning and is a fellow of Australian Institute of Company Directors.

sister groups Provident Capital Group includes two sister organisations – Provident Access and Provident Cashflow.

Provident Access is a specialist financier, which acts as a bridge between borrowers, referrers and property finance markets. It can provide brokers with a single point of access to more than 20 lenders and 70 loan products, including: commercial property loans; construction, development and subdivision loans; specialised property loans; niche residential loans and investment banking facilities.

Provident Cashflow offers unique cashflow finance facilities for businesses, allowing companies to accelerate growth and fund both inventory and outsourced production costs.

such as a sale of the property or refinance,” O’Sullivan says.

On the investment side, the company will shortly be launching a First Mortgage Trust designed to offer investors competitive and reliable monthly income returns. This is in addition to its debenture and wholesale funding services, which O’Sullivan believes will further enhance its funding and treasury capabilities.

Broker focus Provident Capital counts 5,000 active brokers as its key distribution source. Across the group, it employs six BDMs. Typically, brokers use Provident Capital to satisfy the needs of borrowers who either prefer not to use traditional lenders, or do not conform with the lending criteria of traditional lenders.

Many brokers’ clients who use this funding are business owners and the self-employed or the credit impaired.

Despite already having an extensive number of broker relationships, the non-bank lender is working on strengthening its broker channel. It maintains that its commission structure is market competitive and the accreditation process is simple – depending on the broker and his or her location, it can be done in a week.

The non-bank lender has used broker frustration with major banks’ slow turnaround times to its own advantage, by being able to settle loans in under two weeks.

Such slick service should also help draw brokers to its new short-term lending product. MPA

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mpa lender opinion

wanted: aggregators support Mortgage Choice recently ran a series of non-bank lender workshops aimed at exposing their brokers to lenders outside of the big banks. MPA asked three non-bank lenders if aggregators could be doing more to promote alternative lenders to their brokers

Garry Driscoll

Ken Sayer

Murray Cowan

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Garry Driscoll, CEO Mortgage Ezy In the past, aggregators have left it up to their members to decide where the loans were submitted.

Everyone has had to compete on their own merits. In an ideal world this would be fine, but the world has changed and the majors now have a stranglehold on the broker-generated business. Part of the reason for this is that a lot of brokers got lazy and simply became order takers. This has some short-term benefits, but there is always a sting in the tail and we are now seeing what can happen: commission cuts, appalling service levels, minimum volume quotas, preferential pricing, poor service offerings to branches, and cross channel conflict.

The question needs to be asked: How committed are the majors to the broker channel?

Should the aggregators be doing more to promote mortgage managers and non-bank funders? Absolutely.

Without a strong viable non bank sector competition will diminish and borrowers and brokers will suffer the consequences. You do not need to go too far back to remember the days before non-banks, with fat margins on the banks’ home loan portfolios, a flat upfront fee to a broker, no trail, no customer service and plenty of arrogance.

The more things change the more things stay the same!

Ken Sayer, managing director Mortgage House The fickle behaviour of many lenders in response to the global meltdown has convinced many brokers to establish ties with an aggregation group, and introduce loans via this channel. An aggregator undeniably has access to a wide panel of lenders, something which brokers should take advantage of. Aggregators should be promoting the use of alternative lenders to brokers for two main reasons: it potentially increases business opportunities, and it reduces the risk of losing out should the market be subject to a mass exit by lenders that the aggregator is dealing with on behalf of the broker.

Brokers should consider the appetite of different lenders in response to different asset classes. When a financier secures a significant market share, they may opt to focus on business avenues that are profitable and suspend/shut off those that are not. For example, Macquarie Bank withdrew from personal loans and Suncorp Metway suppressed commercial lending.

It has been common in the marketplace for financiers to carve out their niche. But brokers who dealt with these financiers through the aggregation group now need to find a replacement. As the popular saying goes, ‘don’t put all of your eggs in the one basket’.

Murray Cowan, managing director Better Mortgage Management Recent problems with processing times and commission cuts from banks have highlighted the need for aggregators to provide their brokers with the choice of promoting more non-bank lenders to their panel. By restricting choice, aggregators are assisting banks in building market share and squeezing non-banks out of the market, allowing banks to improve their margins while at the same time reducing broker commissions.

Competition is vital to ensure mortgage brokers and their customers achieve optimal outcomes, and aggregators need to realise that their own revenues will continue to the fall if they do not do more to promote non-bank lenders. From an outsider looking in, it does appear that aggregators are rewarding banks with the bulk of their business – even though banks are reducing commission levels and offering poor service to their broker members.

lifestyle reviews

unleash your inner entrepreneur Title: Discovering New Business Opportunities Author: John English and Babette Moate Publisher: Allen & Unwin RRP: $35.00

Let’s begin by coming face to face with one sad truth: not all of our ideas are winners. And unfortunately most business people with an entrepreneurial mind are guilty of being swept up by less than brilliant business ideas, at least some of the time.

To overcome this, the authors of Discovering New Business Opportunities, John English and Babette Moate, attempt to teach readers how to sharpen their judgment and differentiate between the really great ideas and the ones that should be left on the notepad (or napkin) from whence they came.

The emphasis of the book is on smaller businesses; however the authors claim that the principles can be applied to businesses of all scales. Therefore, the theories in the book do not necessarily need to be applied to ideas about new businesses but, for example, can also be used when considering a radical change to the way you operate your existing one.

The methodology behind the book is based on three big questions, which English and Moate claim will help a reader distinguish between an ‘idea’ and a ‘business opportunity’: • can you identify evidence of a viable market?

• can you anticipate the risks involved?

• do you have a business model that makes sense?

However, since they are rather complicated, the book guides the reader through the process across 12 chapters that fall into five parts – each focusing on a different element: • part A looks at the nature of a business opportunity • part B helps readers learn how to identify a viable market

• part C deals with anticipating the risks associated with an idea • part D is all about how to find the right business model • part E focuses on how to judge the commercial feasibility of a new business opportunity Overall, the book is thorough and helps to highlight many points which budding – or even well rehearsed – entrepreneurs may not have considered. English and Moate also include explanatory tables and graphs and take care that each concept is thoroughly explained.

Discovering new business opportunities is definitely a worthwhile read for anyone ready to embark on a business adventure.

About the authors: John English is associate professor in entrepreneurship at the University of Tasmania and deputy director of the Australian Innovation Research Centre. He is the author of the best-selling book, How to Organise and Operate a Small Business in Australia, which has been in print for more than 25 years in 10 editions. He has sold more than quarter of a million copies in Australia.

Babette Moate is a policy analyst with the Tasmanian State Government. She also has her own fashion label called Babette.

The husband and wife team drew on their teaching experience and research into business start-ups to show readers how to identify new ideas, and adapt them to the changing market. The book is also useful for improving the commercial potential of business opportunity.

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Lifestyle reviews

introducing the gastro-club

Sweeping away ‘rugby club’ stereotypes, the Brook Street Bar & Kitchen brings a new term to our vocabulary – the gastro-club.

Luke Cornish samples the fare at Randwick Rugby Club’s crown jewel

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Walking into the Randwick Rugby Club was just like walking into any other sports club littered around Sydney: the welcome desk, the bar, the big screen TVs – check, check, and check.

Turn the corner and enter the Brook Street Bar & Kitchen at the back of the establishment, however, and you are instantly transported to the type of restaurant that would not be amiss in one of Sydney’s top hotels.

Warm timber flooring and an elegant style complemented the sophisticated menu selection.

My dining partner chose the Friday special of rabbit and crayfish pie with mash, while I went for the pan-fried duck breast, braised thigh, confit duck leg with root vegetable mash and pomme anna.

We kicked off the dining experience with some of Sydney’s finest rock oysters, a bowl of warm olives served with grilled sourdough bread and goats cheese croquettes with truffled honey.

These were enjoyed with a bottle of the house Shiraz, which was adequate if unremarkable. The truffled honey was a treat as were the selection of pitted olives – a dish that usually disappoints when ordered in a restaurant.

My dining partner was delighted when her main dish arrived with the crayfish breaking the crust of the pie – almost as if running away from the rabbit within, our server told us. I’m not sure whether rabbits are the natural enemy of the

crayfish, but it made for a creative dish that tasted almost as good as it looked.

For my part, the duck was tender and slightly fatty and I was pleased with how my favourite meat was prepared. The sophistication and creativity of the dishes, on top of the high-class décor, are what really makes the Brook Street Bar & Kitchen a gastro-club.

The meal was polished off with the Affogato – espresso coffee with a shot of Baileys, Frangelico or Tia Maria served over vanilla bean ice cream.

For a change of scenery, diners are able to retire to the cocktail lounge and relax on luxurious, leather sofas where you can enjoy a Big Kahuna cocktail. Alternatively, if you find yourself early for your table booking you can sample its signature St Germain Bleues – the perfect aperitif to whet the appetite.

The Brook Street Bar & Kitchen may be the first club to reinvent itself as a gastro-club, but I doubt it will be the last. The recipe for success is just too tempting to resist.

Brook Street Bar & Kitchen Address: 102–104 Brook Street, Coogee Phone: (02) 9665 5447 Website: www.randwickrugby.com.au

TO ADVERTISE

contact Raj Khatak 02 8437 4772

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lifestyle favourites

Tanya Sale + General manager + finconnect

Favourite things Hobby I referee touch footy for the Count/finconnect teams on Wednesdays and Thursdays. This is what I have had to resort to – even my hobbies are work-related!

Music/Band Pink – she has attitude! How she markets herself is brilliant.

Food Japanese, Japanese and Japanese!

Place to be Sydney Theatre Company (with the kids of course…)

Vacation Spot Praiano in northern Italy, with all the locals. We went there for a month – such a laidback lifestyle.

Star To me a star/icon is anybody who is a volunteer for any type of charity work – now that is a star!

Sport As I am a sports fanatic, I love them all. But if I have to choose, it's the NRL – go the Rabbitohs!

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Book I love criminal/ murder mysteries by the author Patricia Cornwall.

Movie An oldie but a goodie: One Flew Over the Cuckoo's Nest – it freaked me out for years!

Drink Anyone can buy me a scotch and soda.