Mortgages and Home Loan Industry Articles (4) March 2011

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  • 'Not unsuitable' not enough: Gadens

    A Gadens Lawyers senior partner has admonished brokers to go a step beyond NCCP regulations regarding the "not unsuitable" clause.

    “Prior to 1 July, a broker saw their job as finding a lender who would lend the borrower some money. It didn't matter what the lender was all about," he told Australian BrokerNews. "Now the task is to make sure the loan is not unsuitable,” he said.

    However, simply deeming a product ‘not unsuitable’ doesn’t go far enough in Denovan’s mind.

    “If you're an MFAA member, you have to put customers into finance that's appropriate. I would think that despite the fact the legislation says finance has to be not unsuitable, if you get before COSL or ASIC and the finance isn't suitable, they will do you over,” he remarked.

    Brokers should instead make sure they’ve put clients into the finance most suitable or appropriate for their situation, not just the deal most likely to reach settlement, he said.

    “Not unsuitable isn't useful. When I talk about the issue, I talk about suitable finance. Anything less is breaching the obligation of general good conduct. All ASIC is saying is that it's an offence to put someone into an unsuitable loan. That doesn't mean you're discharging your duty by putting them into the loan that's not most suitable,” Denovan said.

    The stakes for brokers on the issue are high, Denovan pointed out, and the best way to avoid running into trouble is by holding the suitability of finance to an even higher standard than ASIC.

    “The fine is $1.1m for companies and $220,000 for individuals if you put someone into a loan which is unsuitable. Most brokers will want to stay away from that. The best way is by putting someone into a loan that is appropriate,” he stated.

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  • Stellar service tops CRM systems

    Mortgage Choice CEO Michael Russell believes customer relationship systems are just a "corporate donation", if not paired with the people skills and service provided by successful brokers.

    Speaking with Australian BrokerNews, Russel said successful brokers should underpin their CMS (Customer Management System) with outstanding customer service from the very first contact through to their personalised post-settlement care.

    "This process is essential for building rapport and to this end, CMS should play little part with the exception of providing brokers timely diary reminders of the key contact milestones during the lodgement to settlement process," he said.

    Russell acknowledges a CMS is an essential investment to keep front of mind with their customers, and "earns its keep" by enabling a granular understanding of customer types, to enable proactive communication.

    However, he said the true value a broker brings is what they do in front of a customer, and not how they communicate with them electronically post-sale.

    "Without fail, every successful broker I have met in the past 10 years has one common denominator - and that is their passion for delivering an unequalled service proposition to their customers. Ask them what's more important their passion and people skills or their CMS and all will answer with the former," he said.

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  • Products must change as culture shifts: Resi

    A non-bank lender has urged other lenders to pursue more innovative products to address the changing desires of consumers.

    Resi CEO Lisa Montgomery told Australian BrokerNews that as generational and cultural change occurs, lenders will have to develop entirely new products to address a new customer base, or risk future generations giving up on the idea of home ownership.

    "We don't want the appetite for home ownership to wane," she said. "Some of the younger generation may adopt the same outlook we see in France, Germany and Sweden the property ownership is not a priority. To that end, we must innovate and the government must put in place initiatives to keep that appetite alive."

    Montgomery said some lenders already have innovative products in place, but need to find new ways to market to changing cultural segments.

    "We need to look at how to address the cultural preferences of our future target market," she said.

    Montgomery commented that as affordability increasingly becomes a barrier to entering the market, loan products enabling first home ownership may have to change. Asked if Australia would ever see home loans of 40 years or longer as exist in China and Japan, Montgomery would not rule out the possibility.

    "I wouldn't say never," she commented. "But I don't think we'll see them in the short or medium term. A demand may develop because of cultural shift, as our market has Asian influences sitting on an Anglo base."

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  • Mortgage sales will improve:Hewitt

    Australian Finance Group's general manager of sales and operations,Mark Hewitt, expects steady growth for the aggregation business as confidence returns.

    Following the release of the group’s mortgage index this week, Hewitt told Australian BrokerNews that although things are generally “slow” at the moment, they are likely to improve as the year progresses.

    While Hewitt said he is not expecting the market to go "bang" this year, he said as confidence in the property market returns, and the impact of Queensland flooding decreases,there is likely to be “steady growth” in mortgage sales in the latter half of the year.

    The group's mortgage index measured sales for February at just over $2bn, down 9.7% on February 2010, when $2,275m worth of loans were processed.

    Hewitt's confidence in the market follows more dire long-term predictions made yesterday by controversial economist Steve Keen, who argued that the market is set for a bubble burst.

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  • Get set for bubble burst: Keen

    Controversial economist Steve Keen has predicted a tumble in housing values as affordability worsens.

    In light of recent RP Data figures on sales volumes and REIA affordability data, Keen believes property can be expected to face significant declines.

    "In 1960, the median home in both Sydney and Melbourne cost less than two years’ disposable income per average household. That figure is now 6.3 for Sydney and 5.7 for Melbourne, and the Sydney level peaked at eight in 2004. So houses are almost three times as expensive now as they were in the 1960s, and interest rates are higher now than they were then too," Keen told Australian BrokerNews.

    However, PRD Nationwide director of franchise research Aaron Maskrey believes property prices will stagnate rather than fall as income rises to meet median home values.

    "Home ownership affordability has declined over the past decade and incomes do need to increase to match current prices," he told Australian BrokerNews. "This is why I believe most markets in Australia will see a period of subdued growth, for a period of one to two years. Key to this will be activity in the market place, which stems from interest rates. If rates keep going up, then activity levels will be minimal."  

    Keen believes, though, that flatlining prices could lead to an exodus from the market and a slump in demand.

    "Since up to 30% of the market is now investors and only a moron would invest for rental returns in Australia, that much of the market could switch from the buy side to the sell side if prices went horizontal for any sustained period," he remarked. "I think it's likely to go in the other direction. Falling median prices will catch up with slowly growing average incomes. Incomes aren't guaranteed to continue rising quickly either."

    Echoing Keen's sentiments is a recent report by The Economist, which claimed Australian property is over-valued by 56%. However, Maskrey believes this assessment is flawed, and while median prices may not rise in the immediate future, he does not expect significant declines.

    "I do not agree that the Australian market is over-valued by 56%. It comes down to what buyers are willing to pay. This statement assumes that if there was a $1 million dollar property on the market for under $500,000, then buyers might be interested in purchasing this. I find this hard to swallow and believe the property would be purchased well before it reaches a 56% discount, especially when taking into account a tightening rental market," he commented.

    Keen, though, believes the assessment of Australian property being overvalued may, if anything, be underplayed.

    "They used only one of numerous measures: rental earnings to price. On so many other metrics - price to disposable income and so on - the same or higher levels of overvaluation result," he said.

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  • Connective to grow credit services business

    Aggregator Connective is targeting member growth in its Connective Credit Services business.

    Established to provide a licence and support model for credit representatives, the Connective Credit Services business currently has 64 members. However, Connective principal Mark Haron said it would target a headcount of 150 - 200 by June this year.

    "We see opportunity for growth in that space," Haron told Australian BrokerNews.

    "At the moment a lot of credit reps are still trying to find out what their aggregator is really doing for them in regard to compliance support," Haron explained. "They have just gone through the process [of transition], so they're not as aggressive or inclined to change in the initial phase of the new regulatory regime. That will open up, particularly in the second half of this year," he said.

    Haron said the business would primarily target existing brokers of other aggregators, rather than new-to-market brokers.

    Connective initially encouraged its network to obtain their own Australian Credit Licences (ACLs), though it established the Connective Credit Services business in June last year for those members who wished to become individual credit reps under a Connective licence.

    Connective had approximately 1200 member brokers following 1 January, 64 of which fell under the Connective Credit Services umbrella. Of the remaining portion, many are credit representatives, but are registered under individual business ACLs.

  • 2010 sales volumes worst in decade

    Sales volumes took a 20% dive for 2010, marking the lowest level of dwelling sales activity of any year in the past decade.

    According to figures from RP Data, sales volumes showed a significant decline in 2010, with the latter half of the year recording the worst result. During late 2010, sales volumes fell to levels similar to those recorded during the GFC in late 2008. RP Data research analyst Cameron Kusher said the exit from the market of first home buyers and investors contributed to the drop off in volumes.

    Kusher said, however, that 2011 is expected to see improvement in sales volumes, though property values may flatline during the year.

    “Although we are not anticipating much in the way of property value growth during 2011 some indicators suggest that sales volumes will improve. Housing finance commitment volumes have levelled and are now improving slightly, unemployment is at 5.0%, wages are growing at a level above inflation and limited growth in property values coupled with wage growth is likely to improve housing affordability," he said.

    While volumes are expected to begin a rebound, Kusher said it will take some time for them to reach average levels.

    “We are anticipating an improvement in sales volumes. However, it seems unlikely that volumes will revert to 10-year average levels. Importantly, any improvement will be relative to the weakest year for sales activity in more than a decade," he commented.

    Supporting Kusher's remarks, the HIA last week reported a slight rise in new home sales for January, with volumes rising 2.5%.

  • January housing finance activity drops

    Housing finance suffered a setback in January, with an across-the-board decline in finance activity.

    New ABS data has shown a 13.5% seasonally adjusted decline in new housing finance for January. Likewise, finance for the purchase of established housing suffered a seasonally adjusted 3.5% drop in January, while finance for the construction of new housing declined 9.4% for the month.

    Master Builders chief economist Peter Jones has blamed the result on declining consumer confidence in the wake of last year's interest rate tightening.

    "The latest setback evidenced in the housing finance numbers is not primarily due to weather events, and has a lot to do with household caution in the wake of recent rate rises by the Reserve Bank," Jones said.

    There were signs of hope in the ABS numbers, with finance for owner occupied housing rising slightly from December to January. Jones said the numbers show housing recovery will be a long road.

    "The best possible interpretation of the housing finance numbers is that the decline suffered in 2009-10 has been arrested, but that the pace of recovery will be slow," he commented.

    Jones urged a long period of interest rate stability on the part of the RBA, saying that this would help consumer confidence recover.

    "Still suffering from the credit squeeze and bank lending practices, it is critical for the interest rate sensitive residential building industry to enjoy the benefit of an extended pause in Reserve Bank monetary policy," Jones said.

  • Banks ready contract printing rollout

    Australia's top tier banks have revealed they are rolling out or considering in-office loan contract printing capabilities for their top broker segments, in what may become a more widely utilised method of improving broker turnaround times.

    ANZ and St. George have revealed they have added document printing capabilities. ANZ has been piloting the service with select brokers for the past six months, while St. George added the capability for its 80-strong 'Flame' segment in January.

    Meanwhile, NAB has also confirmed that it has placed loan contract printing within its "consideration set", though it will first focus on improving its mortgage documentation and other service improvements for brokers.

    The market movement follows that made by CBA last year, which allowed contract printing among its 'Diamond' broker segment, as well as a wider pool of 'quality A' mortgage and finance brokers.

    Both ANZ and St. George have indicated their fledgling service could be extended to a wider portion of the broker market in future, though this would depend on the scalability of technology, and the interest of brokers in the extra administration.

  • Liberty cuts lending, ups profit

    Non-bank lender Liberty Financial has posted a net profit of $40m for the year ending June 2010. The lender's result was underpinned by a 42% write-down in bad debts.

    Liberty raised $350m in term funding over the financial year, while impairment charges fell from $67.3m in 2009 to $39m. Its total funding capacity increased by around $500m for the financial year.

    The company also saw success in the launch of its motor dealer finance arm and term investment fund. Managing director Sherman Ma said the result was indicative of Liberty's moves to further diversify its product base.

    “Liberty has produced a strong result that underscores the benefits of our diversified business model offering products and services spanning the financial services landscape. The continued reinvestment of profits strengthens our capital position and puts us in great shape to continue growing our business by supporting our valued business partners and customers,” Ma said.

    The company's results also show a slowdown in lending, with its total loan book decreasing from $2.77bn to $2.28bn.

  • NAB adds new broker partnership role

    NAB Broker has created a new role, appointing Michael Trencher as its national manager of partnerships and broker distribution. Trencher previously held sales and relationship roles with Mortgage Choice and ANZ, and owned and operated an Adelaide Mortgage Choice franchise.

    General manager of NAB Broker distribution John Flavell said Trencher's previous roles have given him experience in dealing with the broker channel at both a third-party franchise and aggregator level.

    "Michael’s industry experience at both a corporate and owner-operator level gives him a unique insight into the broker market which will complement and add value to the NAB Broker Distribution team," Flavell remarked.

    A NAB Broker spokesperson has told Australian BrokerNews Trencher's role will entail working with management of the bank's aggregators and broker group partners to understand their long-term plans and growth strategies. Trencher will also work with internal stakeholders to ensure NAB Broker's support systems best serve the bank's broker channel partners. Flavell said the creation of the position will allow NAB Broker to work more closely with third-party channels.

    “This is a new role on my leadership team that will focus on building a deeper understanding of our key business partners in order to meet their needs and deliver optimum business outcomes,” Flavell commented.

  • Macquarie sees online appreciation

    Macquarie Bank claims its new online accreditation and valuation process is being received well by brokers.

    In a statement released to media today, Macquarie said the online accreditation process, launched back in December 2010, has been appreciated by its broker network, particularly among regional brokers who no longer have to attend traditional face-to-face accreditations.

    The new accreditation process involves brokers undertaking their required renewal with Macquarie every six months by registering to watch a webcast, which provides an overview of Macquarie ’s home loan product suite, processes and credit criteria.

    The bank also released an online valuation process in tandem with the online accreditation offering, which the bank said is helping brokers to understand the property value at the outset of the application process, so they can manage client expectations and loan structures.

    Macquarie head of broker sales Doug Lee said the process was simple for brokers. "By developing a fully online renewal we’ve simplified the process, making it quick and easy for brokers to complete in their own time,” Lee said.

    He added that the model was more flexible than those of other market players. “We’re not dictating that brokers fit with a schedule to meet with us for a personal accreditation, or have to meet volume hurdles or pay fees - instead we’re asking brokers to fit our accreditation around their busy schedules as they see fit."

  • Compliance, ASIC nothing to fear

    As the full weight of licensing and NCCP regulations comes to bear on the broking industry, Gadens Lawyers has assured the industry compliance will be easier than expected.

    Senior partner Jon Denovan told Australian BrokerNews compliance should not be a point of fear for the industry.

    "I think it will be much easier," he commented. "Everyone likes to cry wolf about any new law. I've seen the credit code come in, and everyone said it would be the end of the world. It's a bit like Y2K. People try to drum up business and scare people. In two years' time it will all be second nature to us."

    Likewise, Denovan commented that industry watchdog ASIC will not be taking an adversarial stance toward brokers.

    "ASIC is the friendly giant. They're there to help, and they've said that publicly," he remarked.

    According to Denovan, ASIC will seek to assist brokers and aggregators with compliance for the first two years of the NCCP regime. After this, he said, the regulator may be more stringent in its enforcement.

    "For the first two years, they're there to assist. After that they might be less friendly. They're the nice uncle at the moment, but they could turn into Uncle Scrooge," Denovan said.

    While Denovan said there are still elements of compliance yet to be decided, such as disclosure and point of sale regulations, he has denied that there are grey areas in the legislation.

    "There's stuff that still has to be sorted out, but that's different from a grey area. Lawyers will tell you everything is bloody uncertain, but we're not that kind of firm," he said.

    One area which does contain some uncertainty, Denovan commented, is the supervision licensees must have over their credit representatives.

    "We still don't know what degree of supervision ASIC expects a licensee to have over brokers. The licensee has made the broker their agent, therefore the licensee is at risk. We know that the licensee has to supervise, but we're not clear on what degree of supervision will satisfy ASIC requirements," Denovan commented.

    However, Denovan believes most aggregators already have good systems of supervision in place.

    "You can't be cavalier about it, but I think the big aggregators have good systems in place to randomly - and not so randomly - check their brokers."

  • Consumer group pushes exit fee ban

    Consumer group CHOICE has released a 14 point action plan for banking competition, calling upon the abolition of exit fees to ease switching by borrowers.

    The government's unilateral exit fee ban is set to come into effect from 1 July, and has been roundly criticised by industry heads as detrimental to smaller lenders. However, CHOICE's Better Banking campaign director Richard Lloyd has claimed small lenders are more concerned with funding issues than DEFs. Lloyd told Australian BrokerNews the group has had meetings with smaller lenders, and has been told the exit fee ban will not significantly impact them.

    "We've had discussions with smaller lenders, and think that issue comes down to who you believe. The smaller lenders have been really clear that exit fees aren't as significant to them as they are to the big banks," Lloyd said. "I think the bigger concern for smaller lenders is the ability to access enough finance to meet demand. Mutual lending is currently outpacing lending by the major banks. They have high quality capital, but do they have the ability to access enough capital to meet demand? The exit fee argument is the classic argument put forth by major banks, but we've asked the smaller lenders, and they've said exit fees aren't as important to them."

    Lloyd has welcomed recent competitive moves by major banks, saying that they could signal an "extremely interesting point in Australian banking" wherein consumer action would force lenders to compete on price and service. However, he has criticised the stance of the Australian Bankers Association on proposed banking reforms.

    "Although we've had some encouraging discussions with senior bankers, it's discouraging to hear what the ABA has been saying. It's depressing to see the mouthpiece of the industry so backward looking and unwilling to acknowledge that it's swimming against the tide. Winning back the trust of the Australian public is within their reach if they would just put into place the right conditions," Lloyd remarked.

    The CHOICE proposal has also called for greater accountability for bank executives and boards, clearer disclosure statements surrounding bank products, the removal of ATM fees for balance inquiries and the introduction of account number portability. Along with abolishing exit fees, the release also called for a comprehensive review of LMI costs.

    The ABA has responded to CHOICE's proposal, claiming the majority of the changes it calls for are either underway or under review. ABA CEO Steve Munchenberg said reviews of account portability and ATM fees are underway, and has pointed out the ban on exit fees will come into place from 1 July.

  • Cannon, White front banking inquiry

    The final day of the Senate inquiry into banking competition begins today, with key industry groups set to front the Economics Committee.

    FBAA president Peter White will be appearing before the inquiry, and is expected to push for further securitisation measures and the portability of LMI, while criticising the government's proposal to abolish exit fees. In the FBAA submission to the inquiry, the group has argued that banning exit fees will lead to higher up-front costs to consumers, as well as increasing commission clawbacks for brokers.

    FirstMac managing director Kim Cannon is also set to appear before the committee, along with chief financial officer James Austin. In its submission, the non-bank lender has argued the need for greater accessibility of funding for smaller lenders and non-ADIs. It has also called for an end to the government guarantee of ADIs, claiming it provides "for an unlevel playing field both for Funds Management and non-ADI lenders". FirstMac's submission has pointed out that the lender has made moves to acquire an ADI license either through establishing a new start-up license or through a strategic alliance with an existing ADI. The lender has lifted its stake in The Rock Building Society to 8.5%, but legislation precludes it from taking more than a 15% stake in the institution.

    Also fronting the inquiry will be Heritage Building Society CEO John Minz and treasurer Paul Williams. The mutual's submission has recommended for the government's wholesale funding guarantee to be reintroduced for smaller ADIs, and for the risk weighting of mortgages for mutuals be standardised to that applied by large banks.

  • Industry submissions slam exit fee ban

    Industry submissions to Treasury have continued to flood in, slamming the government's plan to abolish exit fees on home loans.

    The proposed change to NCCP regulations would unilaterally ban any fee payable at the time of repayments, other than fixed rate break costs and administrative discharge fees. In submissions to Treasury, industry groups such as Aussie Home Loans, Resimac and the FBAA have decried the move, saying it will hurt smaller lenders.

    In its submissions, Aussie has claimed the ban on exit fees will lead to higher upfront costs for borrowers.

    "If exit fees are banned lenders must respond in order to manage return on capital. As a consequence, consumers will not be treated equitably, as those who frequently switch loans and generate higher costs for lenders will be cross-subsidised by increased payments from other stable borrowers," the submission said.

    Non-bank lender Resimac has claimed in its submission that it will lose the ability to compete on price should the ban go through. The submission has stated that the lender does not have the scale to absorb the costs associated with the ban, and will have to cease offering honeymoon rates or paying for borrowers' LMI.

    In its Treasury submission, the FBAA has stated that removing exit fees may lead to increased interest rates, adding up to tens of thousands of dollars of additional interest. It has also pointed out the potential impact of the ban on brokers, commenting that commission clawbacks may be increased as borrowers move more freely between lenders, and that further reductions of upfront and trail commissions could occur.

    Treasury has also received submissions from several other industry groups, including the MFAA, Mortgage Ezy, Homeloans Ltd and Gadens Lawyers.

  • Non-bank fires mortgage war volley

    Non-bank lender Homeloans has jumped into the mortgage pricing wars, offering a $600 cash back incentive on new loans in its Ultra range. Homeloans has also guaranteed to waive loan application fees if it does not provide a full loan assessment and written response within 48 hours.

    The cash back offer will apply to both full doc and low doc loans of over $150,000. Homeloans general manager of third party distribution Tony Carn said the offer will boost competition, and highlighted the lender's assessment guarantee as a sign of commitment to service.

    "In recent times consumers have been offered a range of competitive options, but we have noticed that no one appears to be talking about service,” he said. “We undertake to fully assess a loan and communicate back with our broker partners in a time frame we believe consumers should be entitled to. We continuously strive to provide superior service, and we want to highlight to brokers and consumers alike that we place a big value on service, in addition to providing seriously competitive home loan products.”

    According to Carn, the quick turnaround time on assessments will not affect the quality of the assessments.

    “We do not rely on credit scoring tools, so we are not making an offer with the aim of issuing an unreliable conditional assessment,” he said.

    Carn pointed out that the offer is open to all new applications with the lender.

    “Unlike some offers available in the market, this is not restricted to borrowers of selected financial institutions. It applies to owner occupier loans, investment loans and refinances,” Carn remarked.

  • MPA heralds next generation of broking talent

    MPA has identified the new breed of advisers set to make an impression on the mortgage industry in 2011.

    In its annual Young Guns rundown – sponsored this year by Commonwealth Bank – it has earmarked 12 intermediaries destined for great things in the year ahead. Aggregators, franchisors and contemporaries nominated novice brokers who have made a splash in their first few years in the industry and MPA profiled them to discover the key to their success.

    Barney McCarthy, editor of MPA, said: “As with any industry, it is important that those departing the mortgage market are replaced with fresh blood and hopefully the increased professionalism brought about by licensing will enhance the desirability of mortgage broking as a career.

    “If the brokers featured in our prestigious lift continue the stellar starts they have made to their broking careers, then they could well become a staple of the industry – not to mention the MPA Top 100 Brokers list – for years to come. Congratulations to those who made this year’s cut.”

    Read all about the Young Guns in issue 11.3 of MPA.

  • Fixed rates tumble amid cash rate confidence

    The uptake of fixed rate home loans has seen its first decline since July of last year, a new Mortgage Choice study shows.

    Data from the mortgage broker shows fixed rate loans comprised 10.7% of approvals for the company in February, down from 15.3% in January, 15.2% in December and 11.2% in November. Mortgage Choice spokesperson Kristy Sheppard said uptake for the loans is at its lowest since October 2010. Sheppard put the result down to competitive moves between the major banks.

    “It appears new borrowers were lapping up the newly introduced deals on offer in February, taking advantage of lenders’ various incentives as they compete to outstrip each other of vital market share," she commented.

    Sheppard believes the decline in fixed rate popularity may also signal a return of consumer confidence as interest rates are expected to remain on hold for much of 2011.

    “A move away from fixed interest rates may also signal an uptick in positive consumer sentiment towards the economic outlook. The next cash rate rise is now tipped for mid to late this year," Sheppard said.

    The study has also indicated a downturn in the popularity of ongoing discount loans. The loans fell by 2.1% in popularity, while standard and basic variable rate home loans saw growth. Standard variable loans continued to be most popular, accounting for 34.55% of all approvals, followed by basic variable loans at 25.57%. Line of credit home loans increased slightly to 5.1%, up from 4.8% in January.

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