Mortgages and Home Loan Industry Articles (9) September 2011

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  • Top brokers bucking housing trend

    Pockets of Australia's housing market are bucking the national trend, with demand holding up strongly, top brokers have claimed.

    MPA Top 100 Brokers Jeremy Fisher of 1st Street Home Loans and Justin Doobov of Intelligent Finance both work in Sydney's Eastern Suburbs, where they say demand has remained strong in the midst of sluggish home loan growth throughout much of the country.

    "The majority of my clients are in the Eastern Suburbs of Sydney and the North Shore, but I do see clients from all of Sydney and interstate. The Eastern Suburbs market has held up exceptionally well and remained buoyant and active throughout the past year," Fisher said.

    Doobov commented that his business has been able to see robust volumes by targeting specific market segments.

    "We cover many segments, but mainly professionals and self-employed clients on high incomes looking to buy or refinance a residential or commercial property," he said.

    Likewise, MPA Top 100 Broker Ruan Burger of Home Loans, Etc. in Gladstone has told Australian BrokerNews he has managed to see good returns in the city as demand trends above the rest of the state due to the resources boom. However, Burger said demand has begun to slow in Gladstone.

    "Things are good here [Gladstone in Queensland]., but talking to a few agents, things have slowed down as stock is more limited, and the demand is in the lower brackets," he commented.

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  • 1300 to become top advertiser

    John Kolenda has stated his 1300 Home Loan business will be among the top advertisers in the mortgage category, once its advertising campaign is launched early in the new year.

    Speaking with Australian BrokerNews, managing director Kolenda said the 1300 Home Loan business had so far been 'misunderstood', and that it promised to significantly increase broker business value.

    The business is set to launch a $4m advertising blitz beginning in January -  including TV, radio and billboard advertising - which aims to build the brand among prospective home loan customers.

    Under the 1300 Home Loan model, brokers buy post code or geographic areas for between $700 and $2000 per month, and leads generated are pre-qualified and routed to the local broker.

    Kolenda said the broker then 'owns' this customer, with all following calls automatically routed to the local broker, who can also maintain their own independent brand as well as utilising 1300's.

    Out of 1040 locations available, 400 have so far been purchased, with Kolenda saying that some brokers had chosen to lock in their ownership of more than one post code area.

    Kolenda said the recent RAMS acquisition for $140m by Westpac demonstrated the value inherent in brand, and that brokers would build value in their business by having equity in the 1300 brand.

    He said this was in addition to the value generated through leads and ownership of the customer, meaning that higher than normal exit multiples could be achieved by 1300 Home Loan brokers.

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  • Tight business credit spells broker opportunity

    Strict lending conditions can present an opportunity for commercial brokers, it has been claimed.

    With lenders tightening their criteria for business credit, MPA Top 10 Commercial Broker Tom Waltham of Capital United said many SMEs may be more open to the broker proposition.

    "There is a growing need for intermediaries in the commercial space, and people are becoming increasingly open to our service proposition," Waltham commented.

    Fellow MPA Top 10 Commercial Broker Sam La of Brandi Financial Services agreed, but stated that brokers who wish to capitalise on the market will need a thorough understanding of lenders' credit policies.

    "With the lending criteria now quite stringent, you really need a good plan in terms of getting your deals through. Provide your clients with realistic goals, boundaries and expectations, and keep them informed through the entire process, even if the answer you have is not what they want to hear," La commented.

    Waltham and La, both FAST brokers, said the commercial market is delivering good returns in spite of the tight lending conditions. FAST managing director Steve Kane agreed, and said good opportunities exist for brokers who can gain an understanding of the commercial market.

    "There's no doubt that the pressure is on as economic difficulties and uncertainties continue to plague Australia's SMEs, but there is still business to be done and FAST brokers are doing it. Those brokers with a keen understanding of this space, access to the right lenders and a strong aggregation partner are poised to do very well," Kane commented.

  • Vow targeting WA growth

    Vow Financial is targeting significant growth in WA, CEO Tim Brown has said.

    Following the appointment of Margaret Fraser as state manager for WA, South Australia and the Northern Territory, Brown has told Australian BrokerNews he hopes to see Vow grow to 100 brokers in WA within the next year.

    "Her role is probably 70% growth and targeting new opportunities for Vow, and 30% maintaining the presence we've already got. We've got about 30 brokers there now," he commented.

    Brown said Fraser's role was created specifically to target growth in the region.

    "We had a BDM there who was part-time, but decided that didn't work. We disbanded the role and held off waiting for the right person. Margaret ticks all the boxes," Brown said.

    Brown predicted the company would see rapid growth in WA, saying there were already "a number of groups with interest". He commented that the ability to diversify income would serve as Vow's draw card in the region.

    "We'll probably see Vow Legal launched within the next couple of weeks, and we'll see our white label project as well," he said.

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  • Records are key, ASIC warns low-doc brokers

    ASIC's has diagnosed a more 'acute' case of responsible lending compliance transgressions among low-doc brokers, and urged all brokers to document all interactions with borrowers.

    Yesterday, the regulator released its first verdict on brokers' adherence to responsible lending legislation, based on the conduct of 16 mortgage brokers over the period July to December 2010.

    ASIC found that, while brokers proved to be "generally aware" of and took steps to comply with responsible lending obligations, some were found wanting, particularly in the low-doc market.

    Speaking with Australian BrokerNews, ASIC senior executive leader of deposit takers credit and insurers, Greg Kirk, said there was "room for improvement" in regard to responsible lending.

    The report singled out transgressions including not recording a consumer's requirements and objectives beyond the immediate home loan, not taking steps to verify a borrower's income, not making proper inquiries into living expenses or not recording an assessment of repayment ability.

    "For particular issues we identified, the problem is probably a bit more acute in relation to loans and markets such as low-docs," Kirk told Australian BrokerNews.

    Summing up the findings, Kirk said that to protect themselves against potential disputes with the regulator, brokers needed to ensure their interactions with borrowers were documented.

    "I think an element of a number of these risks is making sure that enquiries are made and are in fact documented," Kirk said.  "Because if a borrower later comes along and raises a question with ASIC or an EDR, and says this loan was inappropriate, if a broker has made reasonable enquiries but don't have the records to show that, they are very vulnerable in that sort of dispute," he said.

    However, Kirk also said there was as much positive news for the industry in the report as negative, as the NCCP had marked a period of "significant change". He listed requirements that have been placed on brokers, such as applying and attaining a licence, having training in place, being a member of an external dispute resolution scheme, and meeting new disclosure requirements.

    "I would stress that we were looking at the first six months, and the regime had only just begun, so the responsible lending requirements were very new," he said.

    "There's been a lot of ground to cover in 12 months, so we are definitely pleased to see the level of consciousness in regard to responsible lending," he said.

    ASIC's more targeted focus on low-doc lending was a result of the practices that resulted in the US sub-prime crisis and the GFC, as well as ASIC's own research from 2008, which uncovered practices involving 'equity stripping' in the low-doc and no-doc segments of the market.

    "Given that they were some of the drives for responsible lending obligations that were being put in place, we wanted to take an early look at them," Kirk said.

    The ASIC review uncovered no evidence of equity stripping.

  • CBA Count takeover cleared despite Russell reservations

    The ACCC has approved CBA's takeover of Count Financial, while noting it will significantly enhance the bank's presence in the mortgage broking sector.

    CBA launched its takeover bid for Count - which owns a 17% stake in Mortgage Choice - in September. Mortgage Choice chief executive Michael Russell previously told Australian BrokerNews the company wanted CBA to off load this stake should the deal go ahead.

    However, an ACCC spokesperson told Australian BrokerNews the regulator's decision did not require CBA to make any divestments. ACCC chair Rod Sims argued that CBA would continue to have competition within the mortgage broking industry after the deal.

    "The ACCC noted that the acquisition would increase CBA's presence in the supply of financial planning services and mortgage referral services. This could potentially have reduced competition in the supply of these services and increased the ability of CBA to direct business to its upstream investment and mortgage related products. However, the ACCC was satisfied that CBA would continue to be constrained by a number of other significant financial planning dealer groups, mortgage broking firms and investment product providers," Sims said.

    Sims indicated that the competition watchdog was satisfied there would not be a "substantial lessening of competition" as a result of the takeover.

    At time of publication, Mortgage Choice spokesperson Belinda Williamson told Australian BrokerNews the company was still "working through the decision". "What I can tell you is our customer proposition remains unaffected," she said.

  • Avoid 'old school' approach to low-doc

    Too many brokers have an "old school" approach to low-doc lending, a broker specialising in the loans has said.

    Following the release of ASIC's examination of low-doc brokers, Oasis Finance Solutions' Graham Reibelt has told Australian BrokerNews he was not surprised the regulator found compliance risks among the brokers it monitored. Reibelt said many brokers took a pre-NCCP approach to low-doc lending, from a time "where even BDMs advised brokers how to tweak a low-doc application to make it work".

    "Brokers need to take a less complicated approach with low doc applications and treat every application as if it was a full-doc without tax returns, because that's all it is," Reibelt said.

    To this end, Reibelt's company has developed special software to process low-doc applications, leading to what he said was a "consistent and all encompassing process". Nevertheless, Reibelt said the NCCP had brought about some "unqualifiable requirements" for low-doc lending, which would remain untested until a court ruling.

    "Brokers are rightfully uncertain about low-doc broking due to ASIC inability to give rulings. Having a new regime in place where everyone is worried about being the first party in court to test out an aspect of it doesn't make for a very cohesive workplace," he said.

    Reibelt also expressed concern that ASIC had expectations of low-doc brokers that went beyond the requirements imposed by lenders.

    "It's a strange world when a broker can be guilty of not complying with the NCCP even though they have fully complied with the requirements of the lender," he said.

  • Flavell - Homeside separation right approach

    NAB Broker's John Flavell has defended the separate positioning of Homeside products and the bank's branch based offerings.

    Connective principal Mark Haron has said the bank is ‘lagging’ competitors with the disparity between Homeside and NAB Red Star products. However, Flavell argued Homeside allowed brokers to deliver an exclusive proposition to consumers.

    “If I’d not had the Homeside brands, I wouldn’t have been able to make our price for risk products available to the market, and those are exclusively available through brokers. The feedback I get from brokers is that that’s the right approach,” Flavell told Australian BrokerNews.

    Flavell said the “subtle differences” between the bank’s Red Star and Homeside products related largely to deals that made up only “1% of the market”. “Where there exist those subtle differences from a policy perspective, they are on things like self-managed superannuation, and there we’re able to provide some solutions to brokers on the NAB platform and fulfil it through using a loan writing specialist. I don’t have any desire to make that available through Homeside,” he explained.

    “Differences in policy in the past were probably driven when you got to the mortgage insurance space. Where we are at the moment is we’re actually applying the NAB policy on that to all the loans in Homeside.”

    Homeside is seen by NAB as a significant source of growth. Currently, there are around seven Homeside deals for every one being written through its loan writing solutions program.

    “People tend to use it as a bit of a locum service. The reason people use the NAB channel is they want to have a person manage the process instead of the system, and they want to outsource part of the fulfilment to specialists. It’s a good value proposition for brokers who want to use it.”

  • 'Realistic' prices to woo buyers in 2012

    Top brokers believe falling home values could spur buyers into action in 2012 as prices become "more realistic".

    MPA Top 100 Broker Justin Doobov of Intelligent Finance has predicted that the market could begin to stir in 2012 as falling prices start to woo borrowers. Doobov said he has still seen good buyer activity in his market, and expects this to continue as prices drop.

    "I think a lot of activity has been because of the prices becoming more realistic. Many buyers who have looked at the market for the past few years have a set value a property is worth in their head. Since the prices have dropped and those properties are now in the range the buyers have thought is good value, buyers have moved quickly to secure the properties," Doobov told Australian BrokerNews.

    Affordability has continued to improve across most capital cities. September marked the third consecutive quarter of improving affordability according the HIA-Commonwealth Bank Housing Affordability Index. The Index is now 5.2% above the level registered in September last year.

    "Affordability looks to now be trending in the right direction and with interest rate cuts in November and December we will hopefully see this trend continue," HIA senior economist Andrew Harvey said.

    Harvey urged house hunters to act quickly, predicting that the improvement in affordability wouldn't last.

    "Potential home buyers should be aware that these underlying factors could see housing return to sustained price growth at some stage in 2012. This possibility combined with an easing in the pressure for skilled trades means that now is shaping up as a good time to buy a new home for those financially able to do so," he said.

    However, Ian Jordan of the Selector Group believes home buyers may have a bit more time to examine the market than Harvey has contended.

    "One thing is for sure and that is that they will make more money buying a quality property at the right price than rushing into something that isn’t fair value. Whilst I don’t see massive price increases coming in the shorter term, I think that prices in mid to long term will increase," Jordan said.

  • Impact of exit fee abolition up for debate

    More than a quarter of a million mortgages were sold after last year’s July 1 deadline for abolishing exit fees but the ban’s impact on competition remains uncertain.

    Treasurer Wayne Swan released the statistics in support of his controversial banking reforms, calling them a win for the 273,236 households that are now free to switch their mortgages without penalty. The reforms also included the introduction of a one-page mortgage fact sheet that will help customers compare different loan products directly with each other. The fact sheet became mandatory 1 Jan. 

    According to Swan, the reforms have effectively boosted competition, as evidenced by recent bank rate cuts.

    Shadow Treasurer Joe Hockey countered that the numbers do not indicate how many borrowers took advantage of the ban to switch loans. He also criticised the ban for disadvantaging small lenders.

    A Mortgage Choice poll released in September suggested that homeowners would not refinance in light of interest rate cuts.

    According to the poll, 36% of homeowners would consider switching, while 41% said they were content with their current rate. Another 14% said they "can’t be bothered" exploring refinancing options. Respondents were not limited to those households which took up loans after the ban.

  • ASIC sinks Melbourne mortgage broker

    ASIC has scrapped the credit licence of Melbourne-based brokerage Star Alliance Financial Services, and permanently banned its director, mortgage broker Prasanna Wijesekara.

    Following an investigation into Wijesekara, ASIC has barred him from ever engaging in credit activities, after he was found to have made false and misleading statements on his ACL application.

    Based in South Morang on the outskirts of Melbourne, ASIC found Star Alliance's application was false and misleading because it did not state AMP Bank had cancelled his accreditation as a broker in 2010.

    In addition, ASIC said it had reason to believe Wijesekara had provided falsified documents and false and misleading information to AMP Bank in support of a loan application in 2010.

    ASIC said Wijesekara also knew, or was reckless as to whether his credit licence application details were false and misleading.

    ASIC commissioner Peter Kell used Wijesekara's permanent banning as an opportunity to warn brokers against falling afoul of the regulator and recently introduced NCCP legislation.

    "These outcomes demonstrate ASIC’s ongoing commitment to ensuring that only those who meet requisite standards of honesty and integrity are permitted to participate in the consumer credit industry," he said.

    Wijesekara and Star Alliance have the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decisions.

  • ASIC acting reactive rather than proactive

    ASIC's Greg Kirk has conceded that much of the watchdog's activity must be "reactive".

    Speaking to the ASIC Summer School in Sydney, Kirk, the regulator's senior executive leader of deposit takers, credit and insurers, said ASIC's limited resources meant much of its enforcement action had to stem from reacting to consumer complaints.

    "Our enforcement action is more often than not going to be arising from complaints, so it's more likely to be reactive than proactive," he said.

    However, Kirk said ASIC's proactive enforcement would largely focus on "high risk" sectors the watchdog deemed likely to see non-compliant activity.

    "My team has much more opportunity to be proactive, so the next step for us is to try to pick a few areas we feel are high risk," he said.

    Kirk pointed to the regulator's recent reviews of payday lenders and low-doc brokers. He said ASIC had chosen the sectors because they were deemed high risk.

    "We found a relatively good acknowledgement of awareness of the requirements. There were procedures that needed to improvement in both sectors, but we thought both - particularly payday lenders - had come a long way in 12 months," he said.

    Kirk reiterated his earlier vow that low-doc lenders would be next to come under the regulator's scrutiny. He said ASIC would also turn its eye to leased goods providers, an area which had been subject to a wealth of consumer complaints.

    "We're doing work at the moment on small leased goods providers. We've had lots of complaints there, and we thought that was justification for looking right across that sector. They don't seem to have a good understanding of the requirements, and there's been a lot of past avoidance activity," Kirk said.

  • Brokers berated for 'unhealthy reliance' on big four

    Adelaide's Damian Percy has argued that brokers still have an "unhealthy reliance" on major banks, while announcing the second tier was offering nil application fees in a special offer.

    Percy, the bank's general manager of third party lending, told Australian BrokerNews that brokers are still largely sending deals through the majors to the neglect of smaller lenders.

    "I think if you talk to most of the aggregators there's been some movement at the periphery, and some movement between the majors, but the general thrust is that an unhealthy reliance on a small group of funders is largely still the case," he said.

    Percy argued that brokers have a responsibility to provide clients with a range of offerings, rather than relying solely on major lenders.

    "This is an industry built on diversity and choice, and it's important that's maintained," he said.

    Today, Adelaide announced a new nil application fee offer, with the bank waiving the $795 application fee on its suite of residential lending products. Percy said he hopes brokers take notice of the bank through the promotion.

    "Everybody needs to recognise you can't win long-term by jumping into the market with special deals, but the reality is that if people haven't used you in awhile you need to give them a reason to use you," he said.

    The nil fee offer is available for applications submitted from 1 March onward. The bank has also cut the application fee for its GoBetween bridging loan product to $200. Percy said there was no set time limit on the promotions.

    "We're putting it out there just to reflect the current state of the market and we'll leave it out there until we feel it's either done its job or it hasn't," he said.

    "What we're trying to do through the nil fee offer is add further to the competitive pressure that alternative banks can provide," Percy added.

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