Mortgages and Home Loan Industry Articles (7) April 2011

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  • Poll: Are aggregators doing enough?

    Australian BrokerNews is running a poll asking how many of our readers think that aggregators are doing enough to support them through the new compliance minefield.

    After complaints that some of the market's largest aggregation groups are failing to supply enough guidance and help - for both ACL holders and credit reps - we are putting the issue to a vote.

    Here's your chance to influence your aggregator! Do you think they are providing enough compliance support?

    To view the results or to have your say, go to the poll on our home page at: www.brokernews.com.au

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  • Get home loan pre-approval - why you should...

    Get pre-approved for your home loan...
  • Calculators could catch brokers out

    Brokers should develop their own fact find and serviceability calculation procedures to meet their NCCP obligations, a risk consultant claims, rather than rely on those of their finance providers.

    QED Risk director Greg Ashe said that under the new licensing regime, he would “strongly advocate” brokers develop their own fact find and serviceability calculators, as lenders could in fact use legal means to “hide behind brokers”.

    "The lender can use their lack of exposure to the client as a defence," he said.

    “If a broker is using a lender’s serviceability calculator without understanding the mathematics and assumptions behind it – and they have not accounted for lifestyle expenditure -  how can they truly stand up and say they conducted reasonable enquiries?” he said.

    Ashe said at the ”very, very, least”, brokers should take comprehensive notes and consider the client’s lifestyle expenditure – even if this aspect does not form part of the serviceability calculator. Ashe said if this is known and understood by the broker, they will have some evidence to show that the information formed part of the credit decision and recommendation process for that client.

    In terms of developing a credit policy, Ashe added that brokers do not need to concern themselves with the intricacies of lender policies, as long as they have a fairly simple policy document that expresses how they will approach their responsible lending obligations.

    For more detailed information on how to handle your approach to credit policy, see Australian Broker's 'Toolkit' section in our upcoming edition 8.07.

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  • ASIC moves to axe ageism

    ASIC has provided new guidance to preclude lenders from discriminating against borrowers on the basis of age.

    With some industry pundits predicting NCCP regulations could potentially shut over-55s out of the borrowing market, ASIC commissioner Peter Boxall has said lenders should not take a restrictive approach to older borrowers.

    'We are concerned by reports of older borrowers whose employment will reduce, or cease, before the end of the loan term, being refused loans because some lenders are adopting an unnecessarily restrictive approach to meeting the responsible lending requirements," Boxall said.

    Boxall commented that older borrowers often have a variety of assets other than those from employment which could be used to service a mortgage.

    "Undertaking the range of enquiries required by the legislation will often reveal other ways that they will be able to repay the loan," he commented.

    In response to the issue, ASIC has updated RG 209 to include clarification that reasonable enquiries into a borrower's financial situation can reveal other means by which a loan can be serviced, even when there is no continued income stream. It has also provided new guidance on issues which should be considered by lenders when assessing a borrower's ability to repay a loan. Boxall said responsible lending should not keep people from securing housing finance on the basis of age.

    "The new responsible lending requirements in the National Credit Act are an important protection for consumers, but they should not be an inflexible barrier to credit for any segment of the population, and should not prevent consumers obtaining credit that they can reasonably afford," Boxall commented.

  • Refinancing your home - is it for you?

    Refinancing your home - is it for you?
  • NAB Broker explains service snafus

    NAB Broker has promised to provide "compelling, consistent" service, after admitting a one-off December 2010 technical glitch had fermented negative perceptions among brokers.

    Speaking to over 300 brokers in the ballroom of Sydney's Hilton Hotel yesterday afternoon, Flavell said that based on feedback from its broker network, a desire for constant service was a key priority, and that it was no good being "good one minute and terrible the next".

    Flavell said a system enhancement in November 2010 - when the bank removed a piece of legacy software to establish one platform for processing loan applications - had resulted in a period of blackouts when brokers were unable to track the status of these loans via instant SMS messaging, as well as online. At the time, Flavell said there were 270 "in-flight" loan applications.

    NAB Broker service feedback data showed that as a result, 38% of brokers were unsatisfied with the bank's service at the time, and only 39% declared themselves satisfied.

    However, Flavell said the bank was now resourcing ahead of time and "running rich" in its processing team to ensure consistency. As a result, Flavell said more recent data showed a shift in satisfaction, with 55% of brokers now indicating they are satisfied with the service, and only 22% unsatisfied.

    Flavell said he considered the bank's current average turnaround of 7.5 days was "too high", and that the bank would "feel more comfortable" with a turnaround of between five and seven business days, as long as this is provided at least 90% of the time, in line with desires for consistency.

    He said that this meant there was an obligation on both parties - both bank and broker - to ensure that loans were submitted appropriately and processed effectively. He declared himself "frustrated" with other banks who indicated that the responsibility for conversions lay entirely with the broker. 

    Reassuring brokers, Flavell also indicated the bank will hold its commissions at their current level for at least the next few years. He said the commission model had been designed to withstand a business cycle of seven to eight years, and the "principles are still sound" in the middle of the cycle.

    NAB Broker figures show that brokers will soon begin to see the long-term benefits of NAB's "ramped" trail commission structure, which pays higher trail commission over time, up to 0.35% after five years.

  • FHB's on sidelines as population growth slows

    First home buyers continue to remain on the sidelines, while those entering the market are borrowing less, RP Data has said.

    In the company's most recent Property Pulse, it has indicated first home buyers accounted for only 14.9% of the market in February. The result is the lowest participation by first home buyers since June 2004. Those entering the market borrowed an average of $277,000, a 1.6% decrease over the past year.

    Meanwhile, the number of new properties being listed has increased by 1.1% over the past week. RP Data indicated that new listings are now 17% above the 12 month average, though they remain slightly below their level at the same time last year. Total listings are at record highs, and sit 21.4% higher than the same time last year.

    Population growth, however, is slowing. Net overseas migration, generally seen as a strong factor underpinning housing demand in Australia, has seen a drop off. In total, population growth in the 12 months to September 2010 was at its lowest level since the 12 months to December 2006.

  • Unemployment fall puts pressure on rates

    Australia's unemployment rate has fallen below 5% for the first time in two years.

    The latest labour force figures from the Australian Bureau of Statistics (ABS) have revealed that the seasonally-adjusted unemployment rate decreased to 4.9% in March. The last time the unemployment rate was at this level was in February 2009.

    The ABS reported the number of people employed increased by 37,800 people to 11.4m. It added that the increase in employment was driven by an increase in both full time employment, up 32,100 people to 8.1m and an increase in part-time employment, up 5,700 people to 3.3m.

    Unemployment rates decreased in four states: NSW, Victoria, Queensland and ACT. They held steady in South Australia, Western Australia and the Northern Territory. Tasmania was the only state to show an increase in unemployment, rising from 5.7% to 5.8%.

    The Northern Territory continues to be the frontrunner in unemployment rates at just 3.1%.

    According to NAB economist David De Garis, the result could put pressure on the RBA.

    "From an inflationary point of view, we want to keep our eyes firmly focused on the unemployment rate. We're getting to that level where we were in 2005-2006, where a year to 18 months later we saw inflationary pressures. I think the RBA has acted quite quickly and are a bit ahead of the game, but this number keeps them in play," he told Australian BrokerNews.

    De Garis said while NAB still does not predict the RBA will move on rates within the next month or so, the bank is still predicting a 50 basis point hike by the end of the year.

    "That remains our forecast based upon where the economy will be by the end of the year," he remarked.

  • Banks should stop pointing finger: Flavell

    Lenders need to stop pointing the finger at brokers when it comes to conversions, a major bank has said.

    NAB Broker general manager of distribution John Flavell has told Australian BrokerNews many lenders take an "arrogant" approach when dealing with brokers. Flavell said lenders are too quick to chastise brokers on the quality of deals they submit, but are often unwilling to proactively communicate with brokers.

    "From a lender's perspective, what I see is a lot of finger pointing that it's all down to the brokers. I don't think that's the case at all," he commented.

    Flavell commented that lenders have as much responsibility as brokers in ensuring the quality of applications and increasing conversion rates.

    "I think it is incumbent on lenders to do the things we can to assist in the process," Flavell said. "No broker lodges a loan believing it's going to be declined. We have to make sure our policies are clearly articulated and well understood. We need a simple consistent approach to policy, and we need to enable brokers where possible to ascertain where potential challenges with an application may lie before they lodge it."

    According to Flavell, this means more proactive communication is needed on the part of lenders. He has criticised lenders who communicate solely via text message or email alert, and said this can further delay the process of seeing a deal reach unconditional approval.

    "One of the quickest immediate opportunities is to pick the telephone up, and we've made that a way of doing business. That way we can have a discussion where we think something might be missing in an application, and we can clear that stuff up right at the front with a phone call and stop bouncing back and forth," Flavell remarked.

    "Lenders make mistakes as much as brokers make mistakes," Flavell added. "I would defy any lender to say they get it right 100% of the time."

  • Life broker launches comparison app

    Insurance broker Life broker has launched an online comparison widget which brokers will be able to integrate into their websites in order to cross-sell insurance products.

    The app, iQuote, will provide comparison data for life insurance products. Life broker spokesman Kyle Heinrich told Australian BrokerNews brokers will be able to place the widget on their websites in order to diversify their revenue by receiving a commission split on customers referred to Life broker The application can also be customised to fit the design of brokers' websites.

    "For brokers, the unique value it provides is a passive or proactive income. Brokers can simply refer their clients to use it on their site, or, by having the right training, will be able to work more with clients to explain what is available and what options are best for them," he remarked.

    Heinrich said the application will provide comparison results and enable clients to purchase approved cover quickly.

    "This app will provide insurance for those that believe it is too time consuming and brings about too much paper work. The quotes are instant, the application process is quick and cover can be given within 24 hours," he commented.

    Heinrich recommended brokers who wish to integrate the comparison engine into their business' website attend training sessions, taking place throughout April and May across Australia.

    "This will better inform [them of] the uses of the tool and how to make it work for them," he said.

  • Government may support reverse mortgages

    Reverse mortgages may see government support as Australia’s population ages, a reverse mortgage broker has predicted.

    Darren Moffatt, managing director of Seniors First, has claimed that equity release will be crucial to fund aged care in the future.

    “The Productivity Commission has stated that there is not enough money in the budget to fund aged care without some sort of equity release program,” Moffatt said.

    Moffatt believes this budget shortfall may mean government involvement in the reverse mortgage market. According to Moffatt, the products will become increasingly important as more Australians head toward retirement age and find themselves cash poor, and the government finds itself increasingly unable to meet the growing demand for aged care.

    “It is possible the government may step in to actively support the reverse mortgage sector,” Moffatt commented.

    The reverse mortgage market has seen many lenders exit following the GFC. However, Moffatt believes lenders will begin to re-enter the market as the government becomes more involved with equity release and reverse mortgage products become more regulated.

    “At one time, there were around 22 lenders in the reverse mortgage space. We’re now down to three lenders. We might be seeing some new lenders come into the market next year. I expect to see a proliferation of new lenders and products entering the market,” he remarked.

    Moffatt said reverse mortgage products are set to be included in phase two of NCCP regulation. But Moffatt does not believe this regulation will see drastic changes to the rules governing reverse mortgages.

    “It is likely ASIC will accept all of SEQUAL’s recommendations,” he said.

  • Australian Mortgage Awards nominations open

    Online nominations are now open for the 10th annual Australian Mortgage Awards (AMAs).

    Each year the AMAs attract thousands of nominations as the industry recognises the achievements of star performers over the past 12 months.

    The 2011 AMAs will see some exciting new award categories as the event grows and adapts to the changing face of the industry. New awards include Brokerage of the Year – Diversification, Best New Office on the Block, Franchise Brokerage of the Year and a new national award for Australian Brokerage of the Year.

    Celebrating 10 years in 2011, the AMAs continue to thrive on the support of leading industry names who value what the Awards represent.

    “The Awards epitomise excellence and leadership throughout the industry,” said award sponsor Vow Financial’s marketing manager Matt Mitchener. “This year is the 10th anniversary of the Awards and we are thrilled to be on board as a sponsor.” 

    Winning an AMA is a career-defining moment for mortgage and finance professionals around Australia. Past winner and 2011 award sponsor Australian First Mortgage (AFM) director Iain Forbes said: “Over the past 10 years, the Australian Mortgage Awards have assisted Australian First Mortgage (AFM) to establish its business and achieve its position as the best Non-Bank Lender in 2010.

    “Leadership and integrity are at the forefront of the Awards and AFM continues to support and sponsor the AMAs for this reason,” Forbes added.

  • Non-banks face annihilation: MFAA

    The non-bank lending sector will disappear when the exit fee ban becomes law in 1 July, and are already going backwards despite the government's focus on mortgage competition, according to the MFAA.

    Referring to Australian Bureau of Statistics figures released last week, the association said in a statement released to media that smaller lenders are losing ground, while the banks' 90.2% market share was the highest since September 2010.

    The MFAA said that in contrast, non-banks managed only 1.9%. This contrasts with the 13.6% share that non-banks had achieved in competition with the banks prior to the financial crisis. The ABS figures found that credit unions and building societies held a 7.9% market share in February.

    MFAA CEO Phil Naylor said that these ABS figures support our contention that the upcoming elimination of exit fees will not increase competition.

    “Most of the major banks have already dropped their exit fees ahead of government regulation and this has clearly resulted in a churning of loans among the major banks but to the detriment of non-bank lenders," he said.

    “On the basis of this trend, non-bank lenders will disappear when exit fees are totally banned in July. How can it be good for consumers when the most competitive lenders are forced out of the market?” he said.

    Naylor said the MFAA had asked the government to exempt smaller lenders from the ban on exit fees.

    “Non-bank lenders are synonymous with bringing down the margin on home loans in Australia, making them more affordable for all Australians,” Naylor said. “Those loans offered by Aussie and Wizard were built on the deferred establishment fee – it allowed them to compete with the banks.

    “Without deferred establishment fees, competition will reduce and Australians will eventually pay more for their mortgages.”

    Non-banks and mortgage managers have already begun ditching DEFs prior to 1 July, with many considering broker commission claw back as part of their revised cost structure, in order to remain competitive.

  • QBE LMI rules out new 100% loans

    QBE LMI chief executive Ian Graham has said he has no concerns with current bank lending standards.

    Following a swathe of revisions to lender LVRs which have pushed consumer borrowing capacity back up to 95%, Graham told media at a Sydney lunch yesterday that QBE LMI has always been comfortable with, and has been willing to insure loans up to 95%.

    He said that despite the global financial crisis, the mortgage insurer's "appetite" for 95% LVRs did not change. He said reductions in LVRs by both small and large lenders following  the financial crisis were a result of lenders themselves balancing their demand with their available supply of funds.

    Despite increased discussion of the potential comeback of 100% LVR loans in the near future, Graham said he does not expect to see these eventuate, primarily due to new NCCP regulations which he said have made lenders "more measured" in their provision of credit.

    He said smaller lenders depend on investors to fund new 100% LVR loans, and that this was unlikely as they are just as conservative in the current market as they have been since the global financial crisis.

    Overall, Graham said he expects the NCCP would have a positive impact on lending standards. "Misinformation and predatory lending are the primary targets of the NCCP. I'm confident we will see better quality business over the next decade than we saw in the last," he said.

  • ASIC vows to pursue credit complaints

    As ASIC increases its role as industry watchdog, it will up its level of surveillance of the industry, an ASIC representative has said.

    ASIC senior manager Dominic Bilbie has said the regulator has begun to actively conduct surveillance of the industry in order to catch out brokers and businesses not complying with NCCP regulations.

    “Surveillance will be conducted to provide information either proactively, or reactively where we have reports of non-compliant activity,” Bilbie commented.

    While Bilbie indicated the majority of the industry has transitioned well to the NCCP and licensing regime, he said the regulator is beginning to see growing complaints of non-compliant activity.

    “We’ve had around 1,900 credit-related complaints, and we are actively investigating those. The majority have to do with unlicensed activity,” Bilbie said.

    Bilbie confirmed that ASIC will take a measured approach, offering guidance to brokers who are confused by the task of compliance. However, Bilbie said the regulator will show little patience for operators who are intentionally and knowingly non-compliant.

    “Our approach to compliance has been that if people are making a genuine effort to be compliant, we will take the appropriate approach. We will be less patient with unlicensed participants, or those who are non-compliant and it is to the consumer’s detriment,” Bilbie said.

  • Bendigo and Adelaide mulls clawbacks

    Bendigo and Adelaide Bank has confirmed it will have to consider instituting clawbacks as the DEF ban comes into place.

    The bank's general manager of third-party mortgages, Damian Percy, has told Australian BrokerNews Bendigo and Adelaide is currently running numbers to find a way around clawing back broker commissions. Percy, an outspoken critic of clawbacks, said Bendigo and Adelaide wants to remain consistent with its previous philosophy.

    "We're looking at it now," Percy said. "Our philosophy hasn't changed, which is to the extent the borrower chooses to move it always and continues to be appropriate in our view that the borrower should wear that cost. Unfortunately, that's no longer possible. We're looking at a number of different approaches, because we have to be cognisant of how it impacts our partners, but we're hoping we can find a way to maintain our philosophical position without costing ourselves a significant amount of money."

    Percy stated that he has been in meetings this week to discuss strategies to adapt to the DEF ban, but said nothing has been decided as yet.

    "We're still doing the maths on it. It will be a question of whether we bring ourselves into line with the rest of the industry including the majors, or if we seek to go our own way. If we do go our own way, whether we do that long-term is dependent on whether brokers show us there's value in that proposition," Percy commented.

    According to Percy, the bank's previous position against clawbacks has not yielded it the attention from brokers it had hoped. Percy said many brokers continue to favour major banks, even as the majors extended clawbacks and eroded trails and up-fronts.

    "As clawbacks have been extended and up fronts diminished by the banks, those banks' market share has historically gone up, which is very strange. Many brokers have been deeply disappointed to the point of genuine anger at the high-handed approach they felt they received from the majors, but in spite of that the majors continue to be supported," he remarked.

    Percy said the bank will continue to work on ways to absorb the ban without instituting clawbacks, but could not rule out the possibility.

    "We're desperately trying to find a way to remain consistent with our philosophical position, which we think is fair and reasonable," he said. "We're still not sure, but we're forming the view that we might take a punt and invite brokers to express their view through showing us that there's value in the proposition. Why do something different at your own cost if the market doesn't value it?"

  • Clawbacks a 'sad reality' for Homeloans

    Another lender has come forward admitting clawbacks will be a reality under the DEF ban.

    Non-bank lender Homeloans has confirmed it will be forced to institute the measure as a result of the unilateral ban on exit fees. The company's general manager of third-party distribution Tony Carn has told Australian BrokerNews that, while Homeloans has not decided on the structure of commission clawbacks, they will be introduced "in some format".

    However, Carn said the company will offer commission alternatives where no claw back is applicable.

    "We operate in a market where lenders tell brokers how they will be paid.  To be a sustainable broker partner you need to provide greater flexibility and work with brokers as a partner as opposed to a dictator of payment terms," he remarked.

    Carn commented that, in coming more in line with major banks, he does not believe Homeloans will suffer significant broker backlash. He said he believes high DEFs have kept some brokers away from non-bank lenders, and the removal of these fees may signal a return for brokers.

    "I don’t expect that the introduction of a reasonable claw back will have any adverse impact on our business, in fact I expect the opposite," he commented. "During the GFC some notable players withdrew from being active participants in the market, and raised their consumer rates at the same time. This saw many borrowers feeling trapped by DEFs on their facilities. This has left a huge psychological scar with many brokers and as a result they have been uneasy offering home loan solutions where a DEF was applicable.

  • Benchmark rate revisions questioned

    Revisions to bank benchmark or "affordability" rates have resulted in calls for brokers to conduct their own client serviceability calculations, rather than rely on the ever-changing calculators of lenders.

    Earlier this week, St. George reduced its benchmark rate by 0.20%, meaning an effective reduction in the benchmark rate for variable rate home loans from 9.6% to 9.4%. The benchmark rate is used to calculate if a client can afford a loan if rates were to increase.

    "St. George has completed a review of customer borrowing capacity to ensure we take into account current market conditions," the bank said in an update to its broker network. "This change will result in a slight increase in some customers borrowing capacity."

    However, the move followed a shift in the opposite direction from Homeside, which raised its benchmark rate from 8.25% to 9%. NAB said in a statement that the bank continually reviews all its rates, including its affordability rates, to ensure that the bank is "lending responsibly".

    "We recently increased our affordability rates in response to several factors including recent moves in the RBA cash rate," a NAB spokesperson told Australian BrokerNews. "This decision helps to ensure our customers only borrow what they can afford to repay should rates increase, providing an affordability buffer."

    Smartline mortgage broker Kevin Lee has questioned whether the bank moves are driven by customer interests, or the need to gain or trim market share growth. "Even though the reduction in St George's test rate is only 20 points, for my money it has been driven by their lack of market share, and not much else."

    Ballast general manager Frank Paratore said it is difficult to understand a bank's rationale for adjusting their benchmark up or down, but that it could be seen as turning the "tap on or off".

    He said this made the affordability situation confusing. "It's hard to gauge how we all operate in the industry, and yet based on the different lending servicing calculators , different institutions will lend vary amounts - some to quite a significant degree.  So who's right, and who's wrong?" he asked.

    Under NCCP, brokers need to ensure that a product is 'not unsuitable' for the client, and conduct basic investigation into the client's ability to repay the loan being sought.

    Lee said that bank moves on benchmark rates demonstrate the underlying need for aggregator software to be 100% accurate at all times, which he said is often made difficult by the banks.

    Paratore said that brokers should probably consider the servicing calculators of one of the mortgage insurers, rather than relying on the changing assumptions of lender calculators.

    Previously, QED Risk Services director Greg Ashe urged broker licence holders to build their own serviceability calculators to meet responsible lending obligations, rather than relaying on lenders. He said banks could use their lack of exposure to the client as legal means to "hide behind brokers".

  • ING pushes REF waiver promotion

    ING Direct has announced a promotion to waive the reduced equity fee on loans with LVRs up to 85%.

    According to a release from the lender, the reduced equity fee will be available for loans up to $800,000, which will remove the need for LMI on these loans.

    "We've launched this promotion to get REF back on the radar," ING Direct executive director of delivery Lisa Claes said.

    Claes commented that the waiver of the fee could help brokers and mortgage managers to draw potential buyers to ING.

    “REF is a compelling proposition for home buyers and investors, allowing brokers and mortgage managers to potentially save their customers thousands," she said.

    The lender has stated that it will provide brokers and mortgage managers with at least a fortnight's notice before the expiry of the promotion.

  • Younger borrowers demand product flexibility

    Mortgage products need more flexibility to meet the demands of younger borrowers, a researcher has stated.

    Mark McCrindle, director of McCrindle Research and expert on generational demographics, has told Australian BrokerNews that a new generation entering the housing market will require more flexibility in their home loan products.

    "We have financial products set up on a 20th century model," he said. "That structured approach is not the way people are living any more."

    McCrindle pointed out the younger borrowers, particularly those in Gen Y, tend to be more vocationally and geographically mobile. He commented that the median length of time homeowners remain in a home has decreased in Australia from seven years to five years, and that along with this increased mobility, Gen Y will also find their life circumstances changing more frequently than their predecessors.

    "Gen Ys have recognised they are going to have 20 years in retirement, or even more. They tend to be taking retirement and sprinkling it throughout their lives. New products need to have that repayment flexibility built in. They're going to need flexible options for when they study, when they're between jobs, when they're overseas. Their transience of life is such that flexibility is required," McCrindle said.

    Because of this increasing transience, McCrindle commented that Gen Y borrowers are more likely to see themselves as investors than owner-occupiers.

  • Your Mortgage receives web makeover

    The most trusted and established mortgage comparison website in Australia has a new look.

    Since 1995, Australian Broker's sister website Yourmortgage.com.au has been providing daily updated interest rate information to Australian home and investment borrowers to assist them in finding the loan that suits their needs. Drawing 150,000 visits per month, Yourmortgage.com.au is a one-stop resource where clients can find the latest property news, price comparisons and loan calculators.

    Visitors to the new look website will notice some exciting new features including Your Mortgage TV, where you and your clients will have access to exclusive video interviews with industry leaders, and the Your Mortgage forum, where you can look for advice from fellow property buyers or industry insiders and join the latest discussion.

    Whether you’re looking to buy your first home, refinance or invest in property, the new and improved Your Mortgage website can provide all the information you need to help you make the right choices.

  • Non-banks not a last resort: Homeloans

    Non-banks are no longer perceived by brokers as a last resort for borrowers with poor credit, a survey has revealed.

    A new poll conducted by Homeloans has found only 13% of brokers see non-banks as being most suitable for customers with poor credit. The result represents a 7% drop from the same research conducted six months ago. Homeloans general manager of third party distribution Tony Carn said the survey shows brokers' changing perceptions of non-banks.

    "Non-bank or alternative lenders are no longer being perceived only as lenders of last resort or for those with poor credit histories,” Carn said. "Brokers are now more open to recommending non-banks. Almost half (49%) of brokers said they wouldn’t find it difficult to recommend a home loan provider to a client who wasn’t familiar with that provider. That compares with 40% in August last year.”

    Carn predicted that the third-party channel may become more comfortable with non-bank lenders after the abolition of DEFs. Though Homeloans recently tipped that it will institute clawbacks in some form as a result of the ban, Carn said DEFs had historically proven a bigger barrier between non-banks and brokers.

    “Currently, for many brokers exit fees are a psychological barrier and they won’t refer loans with such fees. Well from July 1 this will no longer be a credible barrier,” he said.

    Consumers are also becoming more open to non-bank lenders, Carn said. The Homeloans survey indicated 73% of non-first home buyers are open to using alternative lenders, and 69% of first home buyers would consider securing their home loan through a non-bank.

  • Mortality a factor in aged lending declines

    Bank lending to older borrowers is subject to longevity risk calculations by financial institutions, and is a "very complex issue" broader than declines based on serviceability, a broker has claimed.

    Following ASIC's recent guidance to lenders which questioned assumptions that are seeing credit denied to worthy older borrowers, Bernie Kelly of aggregator Trigon Financial told Australian BrokerNews that the matrix of calculations made by banks included the age and longevity risk of a borrower.

    “Brokers from time to time experience strange decisions regarding various declines," Kelly said.

    "One would view decisions regarding age being subject to longevity risk. Various mortality simulation models exist to quantify risk, and most if not all lenders apply this longevity risk model to loans relating to older borrowers, as lenders are not particularly interested in providing credit where ultimately they would end up the owner of a physical asset," he said.

    Explaining the issue, Kelly said if banks lend to an older borrower of 55 or 60, who has the capacity to make repayments as well as capital assets required, it may not "matter what the assets are worth".

    "If they lend money to an older person and apply that mortally risk, the customer may be strong financially, but the question is raised that if that customer passes on, will the property go to the estate, or will the lender be forced to try and sell the asset?

    "There are broader issues that are taking place internally within credit providers, and understanding of mortality and mortality risk is something that is not at the coal face," he said.

    Kelly said most other developed markets such as the UK and US had an insurance industry that provides long-term or 'whole of life' insurance which could assist these borrowers.

  • Fee-for-service could make brokers seem 'greedy'

    Charging a fee for service could be used against brokers to portray the third-party channel as “greedy”, it has been claimed.

    Outsource Financial CEO Tanya Sale has commented that if brokers charge a fee for their services on top of receiving commissions, banks could use this to undermine the third party channel.

    “There would be certain lenders that have been just sitting there waiting for something like this to transpire and are quietly rubbing their hands together with glee,” she claimed. “Think about what percentage of the banks’ lending business goes through third party. If the brokers start on about charging a fee on top of what they already receive in upfront and trail for a residential loan, they will be portrayed as greedy, and charging for something that the banks will provide for no cost.”

    Sale said debate over the necessity of the fee-for-service model is causing some brokers to consider the model out of fear that commission alone will not provide a suitable income. She believes many brokers who are experts in delivering mortgage services may not have the expertise in other areas to justify charging clients a fee.

    “There would be so many writers out there that are fantastic lenders, but would not have the necessary skill sets to position a fee component,” Sale remarked.

    According to Sale, brokers provide a loan writing service, justifying commissions from lenders. However, she does not believe this service would justify a fee charged to clients.

    “I believe our industry is getting confused with fee for service versus fee for advice,” she said.

    Instead, Sale said, brokers should diversify their commission revenue through offering other products such as insurance, asset financing and leasing. She described this business model as having mortgage products as a “hub” and related financial products as “spokes”.

    “All of these can be outsourced. Nobody is saying that they have to be masters of all the ‘spokes’. If writers implemented the new model then they would have a very cost effective business,” Sale commented.

 

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