Mortgages and Home Loan Industry Articles (5) March 2011

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  • Swan exultant over exit fee ban 'victory'

    Treasurer Wayne Swan has labelled the exit fee ban, passed into law yesterday, as a "victory for Australian families".

    Despite widespread mortgage industry opposition to the plan, which many argue will only serve to stymie competition, the exit fee ban is in force and will apply to all new home loans from 1 July 2011.

    Swan said this marked an "important day for consumers" because it had removed "one of the biggest roadblocks stopping Australians getting a better deal for their families".

    "This critical measure will help boost competition in the home loan market over time, by giving consumers greater freedom to walk down the road if their bank isn't doing the right thing by them," a media statement from Wayne Swan's office said.

    Justifying the introduction of the exit fee ban, the Treasurer's statement lashed out at exorbitant exit fees, saying "there's simply no excuse for slugging a family with an exit fee of up to $7,000".

    "Exit fees can be so high that they completely wipe out the savings from switching to a cheaper mortgage with another lender," Swan's statement said.

    Swan also claimed credit for recent moves by major banks to abolish exit fees.

    "Some of the big banks have already responded to the Government's initiatives by abolishing their exit fees, with National Australia Bank even offering to pay exit fees for home owners to switch across from the two big banks that still have the fees in place," he said,

    Swan used the opportunity to urge Joe Hockey not to follow through with his "irresponsible threat" to try and use Parliament to bring back exit fees on new loans after they had been successfully scrapped.

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  • No way back for exit fees: Gadens

    The government is unlikely to reconsider its exit fee ban, according to advice from Gadens Lawyers.

    In a regulatory update responding to the passing of the ban into law yesterday, Gadens Lawyers has advised clients that although industry lobbying may continue, "it seems unlikely that the government will retreat from its stated position despite almost unanimous opposition to the initiative".

    However, Gadens Lawyers said there is potential for some exemptions to be made by ASIC class order.

    "It would appear that a class order is appropriate for certain fees payable at the end of a credit contract, particularly relating to special types of loans," the update said.

    The ban - which will apply to loans entered into from 1 July -  outlaws all fees if they are paid on or in relation to the termination of the credit contract, and any of the amount of credit provided under the credit contract is secured over residential property (including residential investment property).

    Gadens has previously advised this includes fees such as DEFs, Lenders Mortgage Insurance (LMI), capitalised account keeping fees, and interest equalisation fees that recoup honeymoon rates.

    According to Gadens, the ban "creates particular problems for smaller lenders". Gadens Lawyers senior partner Jon Denovan has previously labelled the ban "wildly unfair".

    "As Gadens Lawyers has noted before, if Telcos were banned from charging an exit fee, few people would have a mobile phone.  Perhaps we will see fewer people having home loans, especially those who struggle to meet the lending criteria of the big lenders," the update said.

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  • Competition heat an opportunity: Macquarie

    Renewed vigour in lending competition provides new opportunity for all, according to Macquarie's head of brokers sales Doug Lee.

    Speaking with Australian BrokerNews after only months in the top broker sales role, Lee said the current state of competition in the mortgage market provides lenders a chance to differentiate their offerings from other competitors, and achieve growth in targeted areas.

    "There's a whole lot of competitive forces at play at the moment in the market," Lee said.

    "Lenders do different things according to whether they are trying to market to a particular niche, or they are trying to a particular client type, so we are seeing a lot of movement in that space at the moment."

    "From our point of view what it provides us is the opportunity to continue to elaborate to the brokers what our proposition is. It creates a very good opportunity for us," he said.

    While Lee said growth in the market is not as buoyant as it has been, the subdued market conditions also created opportunity. "I believe there is room for focused growth in specific areas," he said.

    Macquarie is pursuing a "relationship focused" approach to the broker market, according to Lee.

    "For us it's not just about price and pulling a couple of levers here and there, it's  about providing a whole package - and that's the message we are taking to brokers," he said.

    Following a GFC-induced rout, Lee said the group was currently achieving the growth it is looking for.

    A full profile of Doug Lee, including his take on the current market and experience overseas with Macquarie in Canada, will be published in MPA (Issue 11.5).

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  • TV: Keen on the housing bubble

    In our most popular BrokerNews TV video to date, we interview controversial economist Steve Keen,Resi CEO Lisa Montgomery and Mortgage Choice broker Andrew Hawking about housing.

    Is there a housing bubble? And what can the market expect in the near future?

    In the video - The Big Story: Is the bubble set to burst? - Steve Keen, from the University of Western Sydney, argues that a credit bubble is causing the rise in house prices - and it can't last.

    "In the 1960’s, if you went to the bank with $30,000 as a deposit, they would lend you $70,000. Therefore you’d walk out of the bank able to bid $100,000 on a house," Keen says.

    If you walk into the Commonwealth Bank today with $30,000, they’ll lend you $970,000. That’s the impact of going from a 70% LVR, to a 90% LVR. So you walk in with the same amount of money, and you walk out with the capacity to bid a million dollars on a house. I wonder why house prices went up?"

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  • ASIC serious about compliance: QED Risk

    ASIC should not be underestimated as a "friendly giant", and is currently active in the industry pursuing surveillance and enforcement actions on newly-licenced brokers, according to QED Risk Services.

    Greg Ashe, director of compliance and risk consultants group QED Risk Services, has said that the notion that ASIC is our "giant friend" is a stark contradiction to the evidence he is already observing in the industry, and even in regard to his own clients.

    "I've already had clients who have had production orders on them - not for anything sinister, just because ASIC are out there already doing surveillance - they are certainly active," Ashe told Australian BrokerNews.

    To date, Ashe said that particular areas of focus for the regulator are "high risk" areas, such as debt consolidation.

    Recently, Gadens Lawyers senior banking and finance partner Jon Denovan said that 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 earlier this month.

    Denovan suggested that ASIC would seek to assist brokers and aggregators with compliance for the first two years of the NCCP regime - like a "nice uncle" - though after this, the regulator may be more stringent - and become "Uncle Scrooge".

    However, Ashe said that while ASIC "bent over backwards" to help businesses get their licences in the lead up to the NCCP regime, when it comes to surveillance and enforcement "they don't mess around".

    Ashe has also labelled the idea that the NCCP law is too vague and open to interpretation as "a cop out". "Yes, absolutely the law is not prescriptive – it was never meant to be, and it never will be," he said. "But a simple, reasonable approach, this will bear out the answer for them [brokers]."

  • Genworth responds to LMI criticism

    Genworth Financial has lashed out at widespread industry criticism of LMI and its impact on borrowers and competition.

    In a submission to the Senate inquiry into banking competition, Genworth Financial president and CEO Ellie Comerford wrote that "an apparent lack of understanding, on the part of some industry participants, has led to some incorrect assumptions and assertions regarding LMI being made".

    Despite claims from a variety of industry participants and mortgage brokers that LMI does in fact act as a barrier for consumers who are looking to refinance, Genworth has clearly stated in its submission its position that "LMI does not serve as a barrier to consumers switching lenders".

    "Only 1% of residential mortgages originated in Australia each year are likely to involve a consumer paying an additional LMI premium (where there is a dollar for dollar refinance)," the submission states.

    Genworth explained that it is only where a consumer seeks to refinance a high loan to value (HLTV) loan with another lender very soon after loan origination that it is likely they may have to pay another LMI premium. The insurer said that in 85% of those cases, this would also involve additional risk for the lender and LMI provider due to the consumer borrowing more money.

    "Our analysis shows that the consumer is unlikely to be asked to pay LMI again if they switch after two to three years, given the LTV for the new loan is likely to be below 80% given long run home price appreciation assumptions," the Genworth submission states.

    The insurer also used its submission to argue that a form of portability already exists in regard to LMI policies, citing the premium refund schedules in place for lenders, which currently refund 40% of the premium if a loan is refinanced in one year or less, or 20% if between one and two years.

    However, the insurer argued against legislative measures that would enforce 100% portability from lender to lender.

    "Complete portability of LMI as opposed to the current refund arrangements would require significant market and regulatory (capital) changes plus potential legislation. Such moves would give rise to a number of complicated legal issues and take years to implement," the submission states.

    Genworth said average LMI costs total between $3000 and $4000, and that in Canada the premium is "almost 50% higher", in part because of a type of portability.  "Changes to the status quo could result in LMI premium increases for all home buyers due to regulatory capital requirements" the insurer warned.

    Genworth said the current system could be enhanced by more effective disclosure and transparency to consumers about LMI and self-insurance programs in the market.

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  • ...while slamming FBAA LMI position

    Genworth Financial has rebutted FBAA assertions concerning LMI, in a submission to the Senate inquiry into banking competition.

    Genworth Financial president and CEO Ellie Comerford wrote that the insurer had not intended to make a submission to the inquiry, but was moved to respond to criticism by other industry players.

    "An apparent lack of understanding, on the part of some industry participants, has led to some incorrect assumptions and assertions regarding LMI being made during the Senate Inquiry's hearings and in submissions", Comerford wrote in the submission to the inquiry.

    The mortgage insurer said that in the FBAA's submission, the mortgage broking body criticizes the LMI premium refund scheme for lenders and consumers and suggests the refund should be calculated on a pro rata or proportional basis, commensurate with the term of the loan.

    However, Genworth said this FBAA position fails to recognise that the risk of default in respect of a mortgage is not proportional "like car insurance", saying mortgage risk is "very much weighted" towards the first three to four years of a loan.

    Genworth said the FBAA position also fails to account for the fact that LMI providers are required to carry full capital for the first three years of the loan, after which the capital gradually reduces as the risk reduces, and that LMI providers incur significant up front expense in acquiring, underwriting and monitoring the loan in the early stages of the life of the loan.

    However, Genworth has indicated that it will "work with Government and industry to create a greater level of consumer awareness about LMI refunds", after the FBAA's claimed in its submission that consumers are unlikely to gain the refund they are entitled to, unless they ask their lender. Genworth said that at present, no consumer refund is generated automatically via their insurers or lenders.

  • nMB commences compliance audits

    A major aggregator has undertaken audits of its brokers as compliance and licensing comes to bear on the industry.

    National Mortgage Brokers has commenced audits on its broker network to ensure compliance standards are being met. Managing director Gerald Foley told Australian BrokerNews the audits have shown some brokers are still adjusting to the new regime.

    "Early results show us that some brokers still need to improve in the area of file notes and generally recording the details of the process to achieve the required 'not unsuitable' test," he said. "The test in itself is not a very high benchmark, and one brokers clearly cover. It is just a matter of fully recording, using the tools provided by us, the details of the transaction."

    Foley said nMB will take a proactive approach in helping its brokers fulfil the NCCP requirements. He commented that the aggregator will look to mentor brokers finding the process difficult.

    "Our whole approach to broker audits is 'coach, not cop'. It is a proactive process, designed to identify and improve areas where we feel a broker can better protect themselves in the event, some time down the track, a customer has forgotten the process followed and the reasons given to arrive at their selected loan and is seeking some form of redress from the broker," he commented.

    Ultimately, Foley said there have been few surprises in the compliance regime thus far.

    "I think compliance is what we expected it to be: A process where we will find some small gaps in the way some brokers have recorded their client interaction, and addressing them. nMB has always had a tight follow up process around renewal of PI, COSL, licensing and registration and MFAA or FBAA memberships so this hasn’t been a change for us or our brokers at all," he remarked.

    "A few brokers still straggle in renewing these items on time so we've hardened up on them a little to make it clearer that they need to renew in sufficient time to ensure their Credit Representative appointment isn’t jeopardized," Foley added.

  • Churn to follow exit fee abolition

    Vow Financial CEO Tim Brown has said the proposed ban on exit fees will only serve to increase churn.

    In an email to Vow Financial's broker network, Brown said the government plan to abolish exit fees was missing the point, and was not likely to increase competition.

    "The debate around the removal of exit fees does nothing for competition, it just increases churn," he said.

    The heart of the problem with competition is the cost of funding mortgage, according to Brown. He said the government needs to do more by supporting securitisation as the Canadian Government has done successfully throughout the GFC.

    "AOFM setting aside $16b is not even one month’s lending volumes in Australia," Brown said.

    "If the Government is serious about making the market competitive, forget about exit fees and focus on increasing funding sources," he urged.

    The MFAA has previously advocated an approach modelled on the Canadian mortgage market, and lamented the recent government proposal to make an extra $4bn available to support securitisation.

  • DEF ban could exempt non-banks

    With the ban on exit fees set to come into place from 1 July, a Nationals Senator has suggested that the ban could apply only to ADIs, while leaving non-ADIs with the option to keep DEFs in place.

    During the Senate inquiry into banking, Senator John Williams has suggested that the DEF ban could apply to ADIs under APRA regulations, while exempting non-ADIs which fall under ASIC jurisdiction. However,FBAA president Peter White has told Australian BrokerNews that while the idea may seem appealing, it may not be viable.

    "I must admit, I don't know if it really is [viable]," he said. "There is some commercial merit in it, but it doesn't mitigate the greater concern that if you remove the fee from banks they're going to hide that fee somewhere else. That's where the bigger issue is going to be for consumers."

    White said the suggestion could also have ramifications for competition in the sector, with banks seizing on the fact that non-ADIs carry deferred establishment fees while marketing the ADI sector's lack of the fees.

    "There's still a competition issue as well. Does it create an impediment to competition? Will consumers see it as a positive thing? The simplest thing is not to remove it, though the government seems hellbent on making sure the ban goes through, at least in the banking sector. Banks could make it into a competitive advantage."

    With the GFC still fresh in many consumers' minds, White has pointed out that some non-ADI borrowers found themselves locked in higher interest rates because of high DEFs. He commented that banks could use this against the sector when marketing themselves to consumers.

    White said he is instead continuing to push the concept of LMI portability, and is expected by the end of the month to submit proposals on the idea to the Senate economics committee. He told Australian BrokerNews his consultation with insurance industry representatives suggests LMI portability is entirely feasible.

    "I have had many discussions with people in the insurance industry, and everyone's in agreement that there's no reason LMI shouldn't be able to be made portable. That comes even from senior people in the insurance industry," he said.

  • ASIC to focus on advice to aged

    ASIC has revealed that it will focus on regulating financial advice provided to retirees, as part of a newly launched "shadow shop" of the financial planning industry.

    ASIC Commissioner Greg Medcraft said in a statement that ASIC is focusing on retirement advice because the numbers of people getting ready to retire is growing, particularly baby boomers.

    "Around 20% of the current super pool is in retirement products, such as de-accumulation products, and this is likely to double over the next decade, Medcraft said. "It’s critical people make good decisions about their retirement and get quality retirement advice to make the most of their retirement savings."

    ASIC said the shadow shop would not "name and shame" financial planners, but would define good quality advice.

    The advice provided by mortgage brokers in regard to equity release transactions was recently questioned by financial planning peak body the Financial Planning Association, which has argued consumers should be given a full financial plan, rather than go to a broker.

    However, SEQUAL CEO Kevin Conlon argues that brokers are able to advise effectively on equity release transactions.

  • 'Ratebuster' Assured to enter WA

    Assured Home Loans has announced plans to open a WA branch in April, as it seeks to expand beyond its South Australian base.

    Assured CEO Gary Williams said in a statement released to media that the step was a "logical" one for the group, and came as part of a push to grow its business nationally.

    The Assured Group is the parent company to the online mortgage and financial solution ‘Rate Busters’, with Williams saying he expects the expansion will allow WA clients to access the home loan product.

    “At Assured we believe in carefully considered growth and we firmly believe that West Australia offers us significant growth opportunities and is the perfect next step forward,” Williams said.

    To spur growth in the state, Assured has recruited Nick Noble from Homeloans Ltd as its business development manager. Before Homeloans, Noble was a broker and licensee with Ballast Finance, and while never having been a BDM, has been in the finance industry for a total of 25 years.

    Assured Home Loans told Australian BrokerNews on the 8th of October last year that it was set to open its first interstate office in WA "next Tuesday".  However, a spokesperson for the group said that the office opening had in fact never happened, as it had fallen through at the last minute.

    At the time, Williams promised to roll out a new national model that would allow interested brokers to choose from sales of the group’s online Ratebusters product – over the phone from anywhere – or local business generated through an Assured-branded franchise.

    The spokesperson assured Australian BrokerNews the current plan was to open on April 7th in Perth.

  • ING reports home loan growth

    ING Direct recorded a $1.1bn net growth in new home loans during the 12 months to December 2010, the lender has announced.

    Despite a slowing in credit growth locally and hang ups in the securitisation market around the globe, ING Direct's home loan growth boosted its mortgage loan portfolio to a total of $37bn.

    The business reported a net profit after tax of $275.9m for the 12 month period, which was a 5% increase on the previous year, which >ING Direct CEO Don Koch said was due to strong growth in savings and new customers, as well as mortgages.

    The business reported retail savings growth of 10% to $23bn, as well as 100,000 new customers.

    “These results show we are well on our way to embedding home loans, savings and everyday banking products into the lives of our customers," Koch said in a media statement accompanying the announcement. "We’re already strong competitors in the mortgage space and last year’s launch of Orange Everyday put us firmly in the wallets of Australians.”

    Koch said the bank's focus would be on continuing to offering an "alternative option" in the market, based on low or no fee products in savings and mortgages delivered via its online model.

    “We have strong foundations to continue with intended product development and growth plans,” Koch said.

    ING Direct promised to boost mortgage production by 20% in 2011 as part of push to take on the majors.

  • Banks fail to support self-employed

    Pepper Home Loans chief operating officer David Holmes has criticised the major banks for leaving self-employed borrowers under serviced, while naming the sector as a key opportunity for non-banks and smaller lenders.

    Speaking at the Australian Banking + Finance Mortgage Innovation conference in Sydney yesterday, Holmes said self-employed business models had been "severely stressed" by the GFC.

    "The self-employed are really growing in Australia, and through the GFC have been denied access to credit," he said. "But they have come through it, so they must be doing something right - they deserve our support," he said.

    Holmes said the major banks had failed in providing adequate service to the sector. "You have to put more effort into servicing the self-employed, and the smaller lenders will do that," he said. "The banks will find that difficult because they have so many mortgages passing through them, they are not really going to have the time to do that in many cases, so I think for us and non banks that is an area we should concentrate on and we should promote that."

    Aussie Home Loans chief executive Stephen Porges agreed there was an opportunity in the self-employed space.

    "I find it strange that the banks are not going there, because they are key customers, they are the ultimate customers, because they take on more than one product. They almost should be a customer focus for the banks, but they don't seem to be," he said.

    A survey released yesterday by Loan Market supported the idea that self-employed borrowers had been hardest hit by the financial crisis. A survey of the group's brokers resulted in 64% claiming self-employed were the worst off. Another 32% suggested first home buyers, while 4% named refinances.

  • Aussie eyeing direct channel

    Aussie Home Loans will tap into the emerging proprietary market, founder John Symond has told a conference in Sydney.

    Speaking at the Australian Banking +Finance Mortgage Innovation conference this morning, Symond said the company will soon kick off a direct online channel to cross-sell products. According to Symond, cross-selling has been difficult for brokers in the past when dealing with mortgage customers.

    "Our brokers are leaving a lot of food on the table, but we understand brokers can find it difficult to offer cross-sells," Symond commented.

    Symond said Aussie's research has indicated it is more effective to cross-sell products such as credit cards and personal loans after a client has moved into a new home rather than when they are in the process of securing a mortgage. He suggested that trying to cross-sell products while broking a mortgage deal could cause undue confusion for clients.

    Symond also referred to the stake Commonwealth Bank own in Aussie, saying it will provide Aussie with good products in the future. He commented that the money spent by CBA on technology platforms means it will be able to develop and deliver white label products to market within months rather than years.

    "That's still a couple years off for us," he said. "But we will end up having some really sharp products from CommBank."

  • Yes we can, says CBA's Cant

    A senior Commonwealth Bank executive has called on mortgage lenders to surmount a series of challenges that are threatening their growth over coming years, including a higher cost of funding and increased regulation.

    Speaking at the Australian Banking + Finance Mortgage Innovation 2011 conference in Sydney yesterday, Michael Cant, executive general manager of retail products at CBA, said the cost of bank funding was the single biggest factor that will impact the price of mortgages in Australia in coming years, and that it would be "a long road" before seeing any improvement in these costs.

    He said while there has been some stabilisation in funding costs following the financial crisis, there remained significant  downside risks, particularly due to chronic economic problems based on high private and public sector debt in Europe.

    Recent natural disasters in New Zealand and most recently Japan, as well as unrest in key oil producing countries in the Middle East, have all added to the balance of downside risks, he told conference delegates.

    "So while we remain reasonable optimistic of a gradual stabilisation and hopefully reduction in long-term funding costs, this is not going to happen overnight," he said. It’s a long road with I suspect some blips along the way," he said.

    Cant said that at present, banks were still paying in the order of ten times the amount they were paying for foreign funding prior to the global financial crisis, and they would be burdened with these higher costs on their books for years to come.

    In regard to regulation, Cant said politicians and regulators had felt "obliged to act" following the crisis, and that some measures - particularly new global prudential standards - were right and necessary.

    However, he questioned the weight of consumer protection regulation being slated in proposed reforms.

    "While most of the [consumer protection] regulation is well intended, much of it is being implemented in an unnecessarily bureaucratic and prescriptive way, adding significant costs to the industry, which will be ultimately born by consumers.

    "Perversely, the greater the consumer protection and regulatory reforms, the greater the barriers that we put in the industry around compliance. The more red tape, the harder it is for the small players and the new players to compete," he said.

    Cant also derided the government's attempts to increase competition in the market, saying it was already alive and well.

    "I think most people in this room would find the home loan market pretty damn competitive right now - certainly at the CBA, we’ve been running around in a frenzy the last couple of months, seeing what we can do to make our offering in the market more competitive to win more business, and I’m sure every lender in this room is doing the same," he said.

    "So I think when you sit back and have a look at the competition reform, you have got to question the need for some of it. Perhaps even more importantly, the potential effectiveness and practicality of some of these competition reforms, is extremely problematic."

    Cant listed other challenges facing the market as slower credit growth, changing consumer attitudes to debt, and a need to manage greater productivity and efficiency.

  • Loan Market sees approvals rebound

    Loan Market has seen a 20% jump in home loan approvals during February, chief operating officer Dean Rushton has said.

    Rushton commented that in spite of the apparent recovery in home loan activity, consumer confidence has still been dampened by last year's interest rate hikes, as well as flooding throughout parts of Australia.

    “It’s encouraging to see some improvement in our figures but consumer confidence is still markedly subdued,” Rushton said. “The combination of natural disasters such as the floods and cyclones in Queensland and Victoria, cost of living rises and the impact of the interest rate increases last year made for a pretty miserable January as far as home loan approvals are concerned.”

    In flood ravaged Queensland, Rushton said approvals have also seen a dramatic turnaround. After falling 40% from December to January, Rushton said approvals rose 44% in February.

    "With a recovery program underway in Queensland we would expect to see some continued improvement," Rushton commented.

    Rushton believes approvals may continue to rise if, as most economists have tipped, interest rates remain on hold through much of the year.

    “If rates can stay on hold for the foreseeable future that will help restore a sense of stability and boost economic confidence,” he said.

  • Vow puts new finance options into drive

    Vow Financial has added vehicle and equipment finance to its finance options for member brokers.

    While the former Newcastle-based National Brokers Group had provided these services to clients for a decade, Vow will now extend the service to the whole of its broking network. This will include brokers from he other two constituent aggregators The Mortgage Professionals and The Brokerage.

    Vow Financial generated $12m in settlements and $330,000 in brokerage from the business in 2010, a volume which the group says made it a high volume distributor for Westpac and CBA. Other finance was provided by lenders Esanda, Capital Finance and Macquarie.

    Vow Financial CEO Tim Brown said the business would provide brokers with new cash flow, and protect them from any further changes to bank mortgage commission structures.

    “Most importantly they will be able to build a firewall around their clients by being able to offer another additional service other than a home loan," Brown said. He said this would enable them to become a more "all-round" financing specialist, rather than home loan focused.

    Vow is planning to support brokers by providing them with competitive remuneration, all the information they require for moving into the new area, as well as not requiring direct accreditation with vehicle and equipment finance lenders.

    Vow is also set to launch an online CRM system, that will allow brokers to track loan submissions.

  • Niche lenders may absorb DEF ban

    Specialised lenders may be better positioned to absorb the impact of the DEF ban, one non-bank has claimed.

    Pepper Home Loans, which specialises in low-doc and nonconforming mortgages, has stated that more niche lenders may have an easier time adjusting to the exit fee ban than non-banks more directly competing with the majors.

    In late February, Pepper abolished the deferred establishment fees on its products. According to Pepper chief operating officer David Holmes, as a specialised lender Pepper can make the move without suffering the same consequences as other non-banks.

    "For us it's a bit easier, because we're a non-bank that isn't competing with the majors. For non-banks that have to compete with the majors it's different, and they may have to put interest rates up or front-load their fees," he told Australian BrokerNews.

    Because many people requiring low-doc or non-conforming loans may not have as many options in the market, Holmes said Pepper is in an advantageous position.

    "We're not up against the banks, because we're not as rate sensitive," Holmes commented.

    Holmes even believes the DEF ban could work to the advantage of the lender. He told Australian BrokerNews borrowers previously put off by deferred establishment fees may now see Pepper as an option.

    "People see Pepper as a solution loan. They may see it as a solution for 18 months, and then they move to a major lender. The ban may well attract people to use, because they may have seen the DEF as a deterrent," Holmes said.

    However, Holmes said he remains adamantly opposed to abolishing exit fees, as it will hurt the ability of other non-banks to compete.

    "The cost of establishing a loan hasn't changed. It has to go somewhere for those non-banks," he remarked. "I hope the government at least delays the legislation to seek more consultation, but I fear it's a done deal."

  • Clawbacks 'sad necessity' under DEF ban

    A leading non-bank lender has admitted clawbacks may have to increase if the proposed ban on DEFs comes into effect.

    The unilateral exit fee ban is set to be put into practice from 1 July. Homeloans general manager of third-party distribution Tony Carn has told Australian BrokerNews the ban would mean the entire non-bank sector, including Homeloans, would have to re-examine commissions.

    "Commissions will have to come under further scrutiny across the board," Carn commented.

    According to Carn, commission clawbacks would not be out of the question under the ban.

    "For us as a non-bank, we don't enforce clawbacks. Quite frankly, though, we're going to have to look at a claw-back model. That's the sad necessity," Carn said.

    However, Carn remarked that the lender will examine commission structures to find new and better ways to remunerate brokers so as to soften the blow from any possible clawbacks.

    "We pride ourselves on innovation, and it presents a good opportunity to find new structures that best suit brokers," he said.

    Among these structures, Carn said, could be a fee-for-service model. Carn does not believe, though, that any fee-for-service model would entirely usurp commissions.

    "There's a lot of fear about it replacing commissions," he said. "I don't think that's realistic at all."

    As the DEF ban nears, Carn said Homeloans is conducting extensive market research to find the way to best accommodate consumers and brokers once exit fees have been abolished.

    "We are seriously engaged in market research at the moment. We're consulting consumers and consulting mortgage brokers to find out what will be most palatable," Carn remarked.

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