Mortgages and Home Loan Industry Articles (2) February 2011

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  • Banks 'drag feet' on discharges: White

    FBAA president Peter White has accused banks of dragging their feet in discharging loans. White told Australian BrokerNews that even following the 1 July ban on exit fees, banks will make it difficult for borrowers to exit loans.

    "That's been going on forever," White said. "It has been a problem, and is still a problem today as I speak to members."

    According to White, major banks intentionally delay discharging loans to entice customers to stay.

    "The mucking around, carrying on and delaying when trying to discharge a loan in erroneously long," he said.

    White said banks will work against brokers to keep borrowers in loan products, as retaining borrowers is less expensive than signing up new borrowers.

    "They're turn around and make them offers as a means to retain them. They play these games and don't do the right things by the consumer. As a broker, you've done all this bloody work, and all of a sudden banks that wouldn't pro actively do it are now doing it reactively to hang onto a client they lost as a result of a lack of service," he commented.

    "The tactical games that get played far outweigh a $700 exit fee."

  • Vow courts white label partners

    Vow Financial is speaking to a number of potential partners for a white label product the aggregator has promised to launch later this year.

    Vow Financial CEO Tim Brown has told Australian BrokerNews the group doesn't want to launch "just another badged lender's product", and so has not yet made a decision on a particular funder.

    Instead, the group is seeking a joint venture partner, which Brown said will give Vow some ownership over the product, and serve as a differentiator with others in the market.

    "We don't want to offer what everyone is offering in the market," Brown said."If we are going to offer something tied to our brand, we want to offer something unique, and something strong."

    If badged, Brown said Vow would not have the same control over systems, processes and marketing.

    "If we are going to support and commit to it, its better if we can have a say in how its designed and delivered," he said.

    Brown expects to be able to launch the white labelled product in the second half of 2011.

  • Broker proposition sees popularity surge

    More consumers say they understand the benefits of using brokers than at any time since November 2008.

    According to the MFAA/Bankwest Home Finance Index, 35.7% of people surveyed said the understood the benefits of the broker proposition. The result is up from a low of 26.9% in November 2008. Awareness of the services brokers provide is at 78.9%, while awareness of brokers in general stands at 95%.

    MFAA CEO Phil Naylor says the results indicate a growing consumer focus on the broker proposition.

    "We are seeing consumers understand that mortgage broker benefits extend beyond the traditional realms of leg work and wider loan range," Naylor commented.

    As public awareness of banking competition and the interest rate environment grows, Naylor believes consumers will increasingly seek out the advice of brokers.

    "Increasingly the ability to understand a client's personal circumstances and finding interest rate deals are proving key reasons people are turning back to mortgage brokers," he said.

    The index further indicated that 30% of respondents believe brokers are more experienced than lenders, and 67% of those surveyed believe they would get the best deal through a broker. Naylor said the results present an opportunity for brokers.

    "With increasing activity in the investor community, mortgage brokers have a tremendous opportunity to articulate a compelling value proposition based on convenience and choice," Naylor said.

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  • Mortgage Choice grows market share

    Mortgage Choice has grown its market share amid a 13% increase in cash profits. The company reported an $8.8m cash profit for the first half of the financial year, up from $7.8m for the previous corresponding period.

    At its half year results meeting in Sydney yesterday, Mortgage Choice revealed its earnings allowed the company to pay a six cent dividend to shareholders.

    Mortgage Choice also reported it saw loan approvals fall 5.6% for the first half of 2011 compared to the prior corresponding period, but that the result beat the 10% drop in nationwide loan approvals for the period reported by the Australian Bureau of Statistics. CEO Michael Russell said this represented a 4.1% increase in the broker's market share.

    "Everyone is scrapping for a piece of a much smaller pie," he said. "We've been fortunate to outperform our competitors."

    Russell put some of this performance down to the company's marketing strategy, pointing out that it has increased its business-to-business and business-to-customer social media presence, as well as strengthening its search engine optimisation efforts. Russell said the efforts are resulting in "healthy lead generation".

    "It's starting to manifest into giving us more genuine enquiries through the website," he said.

    Russell said the company will continue to focus on lead generation through online efforts.

    "We need to respond and understand that consumers are not gathering where they used to," he said.

  • Mutuals rubbish exit fee reports

    The industry group representing credit unions and building societies has lashed out at Treasury claims mutuals have high exit fees.

    In recently released Treasury documents, it has been revealed Treasurer Wayne Swan was warned a ban on exit fees could hurt mutuals due to the institutions having higher exit fees on which they more heavily relied. Industry group Abacus has hit back at the claims, saying mutuals have lower exit fees than other lenders, and more mutuals do not charge exit fees.

    In a statement, Abacus has referred to a 2010 research report by the University of Melbourne's Centre for Corporate Law and Securities Regulation which the group said indicated mutuals charged the lowest exit fees of any lender and had the lowest percentage of products that charged exit fees.

    According to the report, average exit fees were found to be $678.95 at large banks, $588.71 at other banks, $1,900.65 with non-bank lenders and $419.38 for mutual home loan products. Abacus also pointed to ASIC data showing more than half the loans offered by mutuals in the study had no exit fees.

    "Credit unions and mutual building societies do not charge high exit fees. Claims that credit unions and building societies are hurt by bans on exit fees are false," the Abacus statement said.

    Abacus CEO Louise Petschler claimed dissatisfaction with major banks in recent months has been a boon to mutuals.

    "Mutuals are writing more new home loans each month than ever before. We are welcoming more disaffected bank customers than ever before. Unlike some, our business model has never been, and will never be, based on excessive or unfair fees," Petschler said.

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  • Homeloans sees volume jump

    Non-bank lender Homeloans Ltd has seen a 59% increase in lending volumes over the first half of 2011. In its half year results yesterday, Homeloans announced the spike in lending volume was accompanied by a 42% increase in commission income.

    Homeloans executive chairman Tim Holmes put the result down to an aggressive marketing campaign by the company

    “For the last six months, we've really been concentrating on brand profile in the marketplace. That's led to a subsequent increase in brand awareness," Holmes told Australian BrokerNews. "We've also had some pretty aggressive pricing, and concentrated on service delivery. We've revamped the website to make it more user friendly for customers."

    Holmes said the lender is also looking to grow its storefront presence, increasing volumes through proprietary channels.

    “With ramping up the brand, part of it is increasing our presence on the high street,” he said. "However, third party is still the most important part of our distribution network. I think an increasing number of people are relying on the independence of brokers in sourcing housing finance.

  • EXCLUSIVE: Hockey blasts 'inevitable' DEF ban

    Shadow Treasurer Joe Hockey has told Australian BrokerNews in an exclusive interview that draft NCCP regulations from the Federal Government that seek to unilaterally ban exit fees may go through, regardless of widespread mortgage industry opposition to the plan.

    Following the release of the draft regulations in February – which propose banning DEFs and any other fees paid on exit such as LMI recovery – Hockey has branded the passage of the poorly received changes to the NCCP Act as “inevitable”.

    "At this stage it seems fairly inevitable, as it involves a change to regulations rather than a legislative change," he told Australian BrokerNews.

    Hockey said that this mode of amending the NCCP Act was confirmed in internal Treasury documents released under Freedom of Information in late February.

    Hockey said the Opposition would continue to argue for changes. “We will continue to do our best to put our case to the government, and the broader business community," he said.

    Released in February, the internal Treasury FOI documents revealed that Treasurer Wayne Swan was warned banning DEFs could lead to higher up front loan costs and interest rates.

    Hockey told Australian BrokerNews the documents echoed his previous comments on the subject. "I have maintained throughout this debate that banning exit fees would mean that lenders will look to other means to recoup lending costs," Hockey said. "This has been validated through the release of the Treasury information. Treasury has explicitly advised the Treasurer on this point."

    Hockey also told Australian BrokerNews that recent moves by major banks to compete over home loan business are encouraging, but do not go far enough. "I think that it is certainly a start, but to achieve real reform of the banking sector we need a full financial services inquiry," he commented.

    Despite being contacted repeatedly by Australian Broker, Federal Treasurer Wayne Swan was unavailable for comment.

  • Advantedge recruits Moore replacement

    Advantedge has named MLC-sourced Craig Saville as the new head of Advantedge Financial Solutions.

    Formerly national manager of business development at NAB's wealth management arm, Saville has been recruited to fill the position made vacant when Stephen Moore moved across to head up Choice Aggregation Services as CEO last year.

    Advantedge general manager of broker platforms Steve Weston, said Saville will initially be product and service focused, with responsibility for rolling out the group's fledgling buy-sell facility, debt protection and general insurance product offerings through PLAN, Choice and FAST brokers.

    In the medium to longer term, Moore expects Saville to "drive forward the professionalism of the broking industry".

    "This particular role at Advantedge Financial Solutions will be integral in driving forward the professionalism of brokers, and given we are a reasonable chunk of the market, this role is going to be really important for the industry," Weston said.

    "More and more his role will become working with PLAN, Choice and FAST teams and their brokers to help transition brokers to a more professional way of operating - showing them how they can introduce best practice, work more efficiently, and make more money - in effect creating more valuable businesses for themselves," he explained.

    During his career at MLC, Saville was acted at various times as state manager for South Australia, the Northern Territory, Victoria, and Tasmania, managed MLC's own buy-sell facility, as well as having lending and call centre experience,  skill deemed integral to his suitability for the Advantedge role.

    "It's about as perfect a fit as you could get in terms of skill sets for this role, but I think more importantly Craig's style will be perfect for our business in dealing with small brokers," Weston said.

    "He has a passion for small business, no airs and graces, gets things done and understands the market very well - he is a terrific gain for our business and brokers."

  • St. George ups LVR ante

    St. George has notified its broker network that it will increase its maximum LMI LVR from 90% to 95% for new to bank customers, as it seeks to stimulate growth in in third party originated loans.

    Last week, Steven Heavy told Australian BrokerNews the bank was looking to push its third party mortgage portfolio growth back up to system levels, following slower than expected growth.

    The bank's credit changes are designed to boost its third party performance, and come in tandem with its decision to revert to paying commissions for loans in arrears between 30 and 60 days.

    In addition to the boost to 95% LVR, the bank has offered a $700 refinance rebate for new and existing customers, who choose to exit another institution in favour of a St. George packaged loan.

    This is being run in conjunction with the bank's intro campaign, that is cutting 1% off the standard variable rate for the Introductory Rate Home Loan for the first year, after which it reverts to 0.70% per annum off the standard variable rate, if taken as part of the Advantage Package.

    Heavey commented that the bank was had put a range of different credit initiatives in place "when things were pretty tough", and now that the market was increasingly competitive, it was time to "relook at some of those credit changes to get back to where we were".

  • Brokers speak out against DEF ban

    The government's unilateral ban on exit fees will see broker commissions eroded, leading mortgage brokers have claimed.

    With the ban on DEFs set to come into effect from 1 July, brokers have told Australian BrokerNews the regulation will hamper competition and have a devastating impact on brokers and borrowers.

    "The proposed changes will just increase the market share for major lenders and consolidate the majors' monopoly in the market. It's this lack of competition that will lead to increased interest rates and reduced commissions for brokers," Loan Studio broker Colin Sheppard said.

    Sheppard predicted the ban on DEFs will provide "just another excuse for lenders to try and justify commission cuts in the broker channel."

    MPA Top 100 Broker Jeremy Fisher of 1st Street Home Loans agrees, and said clawbacks will increase under the ban.

    "It will certainly affect clawbacks as clients will move more freely, and potentially in the first year," Fisher said.

    "There is no question that lenders will increase their clawback periods in an attempt to re-work apparent break-even points," Sheppard added.

    Sheppard believes lenders will reengineer their products to recover the loss of DEFs, with brokers and borrowers negatively impacted in the process.

    "There are only two directions that lenders will point additional cost towards: brokers and consumers," he said.

    Fisher believes that encouraging borrowers to move freely between home loan products will ultimately result in borrowers losing out.

    "They may lose sight of why they chose the bank in the first instance and simply change banks for the sake of a few dollars," Fisher said. "We make sure to educate our clients up front as to why a lender was chosen to begin with, and this generally keeps them loyal for the long term."

  • Commission increases on the way: Russell

    As home loan competition heats up between major banks, Mortgage Choice CEO Michael Russell has stated that banks can grab a larger share of the market by upping broker commissions.

    Speaking a Mortgage Choice Half Year Results meeting in Sydney, Russell said banks will see volumes grow if they make favourable moves on commissions.

    "If banks want to grow their lending, they should pull the commission lever. It's the number one lever they could pull to guarantee themselves volume from third parties," Russell commented.

    Russell remarked that brokers paid on pass-through would naturally favour the loan with the best commission structure when presented with similar products.

    "It wouldn't affect Mortgage Choice franchisees, because we have the paid the same structure for commissions, but it would affect our competitors who pay on pass-through," Russell said.

    As the big four continue to jockey for home loan customers, Russell said no commission benefits had come through as of yet, but he believed commissions would be the next strategy banks used to draw more home loan business. Russell pointed out the recent St George decision to return to paying trail commissions on loans between 30 and 60 days in arrears.

    "We think this is the first win for mortgage brokers since this war started," he said.

    Russell predicted that major banks will continue to grow their mortgage books in order to meet capital requirements. He said this will provide respite for brokers after a difficult 12 months in which brokers had seen tightened lending by banks, the impact of NCCP legislation and licensing and reduced commissions.

    "Brokers are being rewarded with lenders competing for their business, and an uptick in credit growth. I'm telling you, it's coming," he said.

  • Treasury cautioned Swan on DEFs

    Treasurer Wayne Swan was warned by Treasury officials about potential negative impacts of the ban on exit fees, it has been revealed.

    The ban on deferred establishment fees is set to come into effect from 1 July, with the draft NCCP regulation released for comment last week. However, in documents released by Treasury under Freedom of Information, officials warn swan that banning deferred establishment fees could mean fees reappear elsewhere.

    "Banning [exit fees] will remove a fee that is designed to address the legitimate cost of offering a mortgage product," the document said. "As such, mortgage providers will need to find alternative ways of covering their costs, which could lead to a range of unintended consequences from the Government's action that could outweigh the benefit of the ban."

    The internal document warned that these unintended consequences could include higher costs passed on to borrowers, saying home loan providers may seek to cover losses from the banning of exit fees through increasing interest rates or upfront fees. The Treasury memo pointed out that increased upfront fees could carry disadvantages to consumers which exit fees do not.

    "While customers may be more inclined to focus on these upfront fees rather than exit fees, and hence drive further fee-based competition, those same customers may be worse off as the fees they are more easily able to compare will be unavoidable, unlike exit fees," Treasury said.

    Treasury officials also warned Swan that removing exit fees would reduce fee transparency with home loans, and that first home buyers would be disproportionately impacted by the introduction of greater upfront fees. The document stated that the measure would also hurt smaller lenders such as mutuals, reducing their ability to compete effectively.

  • St. George reviews commission changes

    St. George will return to paying brokers trail commissions on loans that are between 30 and 60 days in arrears, following a quarterly review of the wholesale changes that were made to its commission structure last year.

    St. George head of intermediary distribution, Steven Heavey, told Australian BrokerNews that the bank's decision to cease paying trail after a loan had fallen more than 30 days into arrears had been regarded as an "unfair measure" by brokers.

    "I've made the decision that we will revert back to the 60 days as of next month," Heavey said.

    Heavey said he agreed with feedback that suggested a broker's ability to influence a customer within a 30 day period was difficult.

    "The 60 days allows them to have the conversation with the customer, to get them back on track in terms of payment and therefore not affect their tail income," Heavey explained. "I think most brokers do everything in their power to ensure most customers maintain good accounts. It's hard to do in a 30-day period, and we've acknowledged that and made a fair decision," he said.

    St George was expected to notify its aggregator partners of the changes this week, with the revised structure to be applied from next month.

    Heavey said the review also revealed a significant uplift in the amount of upfront commissions most brokers are earning, due to an improvement in the quality of loan submissions. St. George rewards the quality of loan submissions by paying upfront commission based on conversions.

    "What they [brokers] have actually done is adopted the thinking around improving quality, and using conversions," Heavey said.

    "What we are actually seeing is that in some cases up to 50 per cent of brokers are earning 70 basis points [upfront] for some aggregators. So they've actually changed behaviours, which is what we intended through the initial commission structure change, and as a consequence they are getting significantly higher upfronts, which is offsetting the loss of trail year one," he said.

  • BIS Shrapnel forecasts approval rebound

    BIS Shrapnel has predicted stronger growth for 2011/12, forecasting that the slowdown in housing approvals will turn a corner by the middle of the year.

    The company's Building Industry Prospects report has predicted the total number of new dwelling approvals will rise 8% in 2011/12 to 177,000, which would be the highest level since 2003/04. While BIS Shrapnel has forecast an 11% decline in new house approvals for 2010/11, the company believes the lingering effects of the drop in first home buyers will come to an end during the year.

    "There is evidence that the drop-off of first home buyers has now bottomed out, BIS Shrapnel senior manager, building and construction Angie Zigomanis said. "The latest data for the month of December 2010 indicates that the number of first home buyers improved to a decline of 29% on the previous year, while the actual number of loans given to first home buyers was also the highest level since December 2009."

    The company has predicted improvement in first buyer activity will continue through the year, with numbers recovering to long term levels. According to the report, demand due to the lack of housing stock, a robust economic environment and a period of interest rate stability will see demand for new houses pick up throughout the year.

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