Mortgages and Home Loan Industry Articles (9) September 2011

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  • Brokers 'protected' from FoFA-style impost

    The MFAA has stated it is closely watching reforms in the financial planning industry to ensure brokers are protected from such imposts.

    The Future of Financial Advice draft legislation, released today, includes a controversial proposal to make financial advisers renew contracts with clients every two years. The legislation would also extend a ban on "soft dollar" remuneration for planners, and would ban commissions on group life insurance products inside superannuation as well as extend ASIC's powers to ban financial planners.

    While the FoFA legislation will only affect the financial planning industry,MFAA CEO Phil Naylor told Australian BrokerNews the organisation is "watching developments closely to ensure the interests of brokers are protected".

    Naylor said mortgage broking will ultimately avoid the regulatory imposts seen by financial planners due to the difference in the "flow of money" in the two industries.

    "While brokers organize funds for their clients, planners advise their clients on the use of their clients’ funds. The risk is entirely different. This is why the Government accepted our arguments that broking should not be covered by the Financial Services Reform Act but under the specially created National Consumer Credit Protection Act," Naylor said.

    "It should also be noted that the events such as Westpoint and Opus Prime, which triggered the Inquiry which has resulted in FoFA, have no parallel in mortgage broking," Naylor said.

    Naylor also argued that commissions in mortgage broking were "miniscule" compared to those in financial planning, which he said could protect the industry from similar regulatory action.

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  • Credit ads face ASIC scrutiny

    ASIC has released guidance dictating the advertising of financial products and advice, including credit products.

    The regulator said it released the guidance because advertising which did not "fairly represent" the financial products on offer could mislead consumers and lead to poor investment decisions. The guidance comes after ASIC studied the advertising of a variety of financial services, including advice on superannuation and property investment.

    "The objective of our guidance is to help promoters and publishers present advertisements that are accurate, balanced and help consumers make decisions that are appropriate for them," ASIC chairman Greg Medcraft said.

    The regulatory guide released by ASIC urges the financial services industry to go beyond the minimum requirements of not being misleading or deceptive in advertising, to be proactive in ensuring advertising helps consumers make appropriate decisions. Medcraft said the guidance will also protect financial services providers.

    "While our guidance covers issues of good practice in advertising, it may also help promoters and publishers comply with their legal obligations not to make false or misleading statements or engage in misleading or deceptive conduct. Our guidance also indicates to industry the types of advertisements we may focus on more closely," Medcraft commented.

    The regulatory guide has proposed that advertising should clearly explain the nature of financial products, give a balanced message about the returns, benefits and risks associated with the products, offer comparisons with similar products and clearly disclose all direct and indirect associated costs. The regulator has advised it plans to release further guidance on the advertising of credit products in particular.

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    Get pre-approved for your home loan...
  • ALCo seeks online engagement

    Australian Loan Company is seeking closer engagement with consumers and brokers by building a social networking presence.

    Speaking with Australian BrokerNews, ALCo general manager Lesley Wood said the aggregator was aiming to build a "community around our business", through its Facebook and LinkedIn pages, as well as a nascent blog.

    “Social media provides us with a great way of getting to know industry peers, clients and potential clients, on a more personal level," Wood said. "We hope that our audience will get to know us as a business and as a company that can help them reach the dream of home ownership."

    The aggregator's LinkedIn account is being used to communicate with brokers, while its Facebook page is designed to speak more to clients, though brokers are also members of the Facebook page.

    Wood said that the site would also eventually be used to generate leads.

    "We are slowly building up a community around our business and believe that by providing good, useful information we will build our reputation so that when a client is at the stage of applying for finance they keep us in mind. Any leads that eventuate will be passed on to our brokers," she said.

    "Having this interaction will also builds trust with potential clients so that they feel comfortable contacting us to look after their financial needs. Applying for a loan is a big deal so the more comfortable we can make our potential clients, the better the results will be," she said.

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  • Become an MPA Top 100 Broker!

    Entries are now open for the industry’s most prestigious broker ranking list – the MPA Top 100.

    The annual ‘hall of fame’ is an opportunity for brokers to go head-to-head with each other for the chance of being named the top-performing mortgage adviser in Australia. Even making the MPA Top 100 is an achievement worthy of marketing to your clients.

    Brokers keen to find out how they fare against their peers have to submit their total home loan settlements for the financial year 2010/11 by the 26th September.

    Mortgage Choice broker Wendy Higgins will be looking to make it three in a row after topping the list in 2009 and 2010. Last year she was almost $25m clear of the closest contender with an impressive total in excess of $141m.

    Those who haven’t entered previously shouldn’t be deterred either – 49 of last year’s top 100 were new entries. So don’t delay and enter today to see how you measure up against your counterparts!

    To enter, fill out the  MPA Top 100 entry form. Further details can be found on the form.

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    Refinancing your home - is it for you?
  • 'Sharp decline' for housing: HIA

    New home sales have seen a "sharp decline" in July, the HIA has indicated.

    The latest HIA - Jeld-Wen New Home Sales Report has shown an 8% drop in the number of new home sales in July, marking the second consecutive month of falls. June saw an 8.7% decline in home sales.

    The decline was driven by a 9% drop in detached house sales. Multi-unit sales, meanwhile, increased 1%.

    "The July sales result reinforces the marked deterioration in new home building conditions that is so glaring in mid-2011," HIA chief economist Harley Dale said.

    In light of the declines, Dale argued home buyers could benefit from the weak market.

    "A competitive building market, less pressure on skilled trades and steady interest rates combine to mean that if you're in a financially sound position to do so, now is a particularly good time to build a new home," he remarked.

  • NCCP blocks broker 'independence' claims

    An NCCP amendment has dictated that brokers can no longer describe themselves as 'independent' in advertising their services to clients.

    The amendment restricts the use of the terms 'independent', 'impartial', 'unbiased' or any other words with similar connotations. The amendment dictates that licensees cannot use the words unless they do not receive any commissions not rebated in full to the borrower, do not receive any other gifts or benefits from lenders, are not subject to any restraint in product offerings and are not subject to any conflicts of interest.

    Gadens Lawyers senior partner Jon Denovan told Australian BrokerNews the restrictions see the mortgage broking industry become subject to the same rules governing the financial planning industry.

    "The same restriction is there for financial planners. They can't call themselves independent," Denovan commented.

    Denovan confirmed that brokers will not be able to use the terms in their marketing, or advertise their services as "independent".

    "To be independent you would have to have no upfront and no trail from the lender," he stated.

    However, Denovan predicted the industry will find a way to adapt.

    "I think the industry will find a way around it somehow. We'll find another word, like 'we're on your side' or, as Aussie said, 'we'll save you'. It kind of says the same thing as 'independent'," he said.

    Denovan indicated brokers who use any of the terms will have to rethink their marketing strategy.

    "They probably should never have used those terms as they are very high standards to live up to, and very hard to prove in a court if you receive different commissions from different lenders," Denovan said.

  • Competition to see banks cut out brokers

    A financial services consultant has claimed banks will increasingly try to shut out brokers as the mortgage market becomes more competitive.

    As banks compete with increasing home loan discounts, leading financial services consultant Max Franchitto of MGF Consulting Group has told Australian BrokerNews he expects banks to try to increase their margins by promoting their direct channels rather than third party channels.

    "Channel conflict is something we have to be aware of and manage on a day-to-day basis. Why am I going to pay top dollar to a distribution channel if I have the option of picking up clients in a direct fashion?" Franchitto said.

    JP Morgan earlier this week advised clients in a letter that bank discounting of standard variable rates ran the risk of eroding profitability. JP Morgan's Scott Manning reportedly told investors that 0.9% discounts were "uneconomic" if sold through mortgage brokers. With this level of discounting, and direct sales becoming increasingly economically attractive to banks, Franchitto contended that the growth of channel conflict is undeniable.

    "I think industry players that are playing down channel conflict are doing it because they don't want to give life to an enigma that's already happening'" he commented.

    Franchitto argued that banks could begin to "cherry pick" the best clients for themselves, seeking to ramp up distribution through branches and mobile lenders.

    "I think owning the channel is now becoming a much more viable proposition, and if you look at some of the credit unions they have already moved in that fashion. Mathematics doesn't lie. Mathematics is not a subjective science. Why exclusively pay somebody when you can go direct?" he remarked.

    In order to survive, Franchitto argued that the industry would have to evolve into a "one-stop shop" model offering holistic financial services. He said small brokers focusing purely on mortgage sales would face difficulty remaining viable.

    "The single mortgage broker sitting in an office purely selling Mum and Dad mortgages, that model has a use-by date. The bigger groups trying to offer a menu of financial services, that's the model that will eventually survive," he said.

  • Rate cut won't spur refis

    Most homeowners would not refinance their mortgage, even if interest rates fell, a new survey has suggested.

    A Mortgage Choice poll has found only 36% of homeowners would be spurred toward refinancing by a fall in interest rates. Forty-one per cent of homeowners said they would not switch, as they were content with their current interest rate setting, while 9% said they were in a fixed rate facility and did not want to pay break fees and 14% said they "can't be bothered" exploring refinancing options.

    The poll has also revealed more than a quarter of homeowners remain unaware of the aggressive home loan competition between lenders. Of the 74% who said they were aware, 45% said this competition could encourage them to switch their mortgage or lender by the end of 2011.

    Mortgage Choice spokesperson Kristy Sheppard said it was not surprising that 26% of homeowners were unaware of the competitive home loan environment, but that it was "disappointing".

    "Unfortunately a large proportion of property owners have no idea they could possibly save money or change to a more suitable home loan by taking advantage of special offers and/or re-negotiating their mortgage situation. There are plenty of switching incentives and rate discounts on offer at the moment, and lenders’ retention departments are operating in full swing," she said.

  • Banks warned not to lower lending standards

    Banks must resist the urge to relax lending standards in a low credit growth environment, the RBA has warned.

    In its Financial Stability Review report the Central Bank has pointed to slowing demand for household and business credit. The RBA stated that bank lending to households increased 4.9% over the six months to July, down from 7.4% for the six months to January. The Reserve Bank predicted that this trend was "unlikely to change in the near term".

    With slower credit growth on the cards for banks, the RBA has urged financial institutions to adapt without lowering lending standards or "imprudently expanding into new products or markets".

    Adapting to this environment, the RBA said, would mean lowering profit expectations. The report has warned ADI shareholders to "revise their expectations" regarding profits.

  • Brokers navigate new disclosure regime

    Mortgage and finance brokers are now coping with the newly introduced disclosure regime under NCCP, after it came into force after extended delays on October 1.

    Originally due to begin on 1 January this year, the implementation was pushed back due to continued negotiation between industry and Treasury. Until now, brokers were only required to disclose details of their EDR scheme, and use Finance Broking Contracts that specified any fees paid by a borrower.

    Speaking with Australian BrokerNews, Kiran Saldanha of The Finance Professionals said the changes  had become one of the things "causing a lot of concern" among brokers in the market.

    Saldanha said the main worry in regard to his own business was that "all the information we have is coming from third parties", including aggregators and other advisors such as solicitors.

    "Everyone is interpreting this in the best way they can. The amount of time we have as brokers to focus on these things doesn’t allow us to really go into the depths of it and understand it," he said. "Even on the legal side, each solicitor has their own opinion."

    Saldanha said he had made a decision to rely on the systems his aggregator Connective had put in place to manage disclosure, which have been integrated into its Mercury software.

    "I've done that for two reasons. One, they have the most amount of time to get on top of these things, and two, because they also have credit reps, so they have to do a good job of it," he said.

    Saldanha said the biggest impact would come in the area of casual advice, where brokers will now have to produce pages of documentation when previously a phone call may have been all that was required. He said brokers would bear this cost, and wouldn't "earn a dollar" for meeting these requirements.

  • Fixed rate spike as FHBs flock to market

    Fixed rate home loans rose dramatically as a proportion of all mortgage loans written in September, according to Australian Finance Group.

    The AFG Mortgage Index has found that fixed rates accounted for 16.6% of the group's $2,633m worth of loans written during the month of September, up from 9.4% during the month of August.

    The group said fixed rates were the most popular they have been since April 2008, when they made up 18.4% of the group's volumes.

    AFG general manager of sales and operations Mark Hewitt said September saw very aggressive competition, with lenders cutting their fixed rate offers.

    "The combination of more realistic property prices, attractive financing options, and lack of confidence in the share market seems to be coaxing first home buyers and investors back into some markets," Hewitt said.

    In fact, the AFG figures showed a return of first home buyers in New South Wales, Western Australia and Queensland during September. The national figure of 15.7% of first home buyers is in line with the long term average, but in NSW first home buyers accounted for 18.9% of the market, while in WA this figure was 17.4%, and in Queensland first home buyers mad up 15.8% of the market.

    AFG's overall sales volume for September was up 12.8% compared to September 2010 and refinancing accounted for 38% of loans processed.

  • RBA freeze on rates slated to continue

    Rates are not expected to go anywhere when the Reserve Bank meets today, representing the 11th consecutive month the RBA has remained sidelined.

    A Bloomberg poll of 22 economists has indicated all economists surveyed expect the Bank to leave the official cash rate untouched at today's Board meeting. An AAP survey of 15 economists showed similar results, with economists unanimously tipping the RBA to remain in a holding pattern.

    Rates seem likely to stay on hold for the immediate future as well, with only two of the 15 economists polled by the AAP signaling a rate move by the end of the year. One of the economists polled predicted a rate hike, while one predicted rates to head downward.

    The most bearish of the major banks, Westpac, has sided with the majority of economists in predicting the RBA to remain steady today. However, the bank's chief economist Bill Evans has reiterated Westpac's stance that the next rate move will be downward. He said though the RBA seems not convinced of the need for a rate cut, the series of rapid fire reductions in 2008 shows the Board's stance can change quickly to accommodate economic shocks.

    "We are not despairing yet about our December call despite there only being two more meetings before our December target date. We take some heart though from how quickly the Reserve Bank can change its stance. Indeed RBA thinking has moved quite rapidly in our direction," he commented.

  • NAB continues fixed rate slashing trend

    NAB has cut fixed rates, continuing the most recent round of fixed rate slashing.

    The bank has reduced its entire range of packaged fixed rates, dropping its two and three-year rates 10bps to 6.39% and 6.44%, respectively, and its one-year rate by 15bps to 6.34%. The move follows a new round of cuts last week which saw Westpac, St. George, ING Direct and non-bank lender Firstfolio all drop rates.

    NAB executive general manager of consumer product solutions John Salamito said the reductions bring NAB's one-year rate to the lowest level offered by the majors.

    "NAB has offered the lowest standard variable rate amongst the major banks for more than two years, as well as continuing to offer competitive fixed rates. Our latest adjustments to fixed rates reflect current markets and our commitment to offering customers competitive rates," he commented.

    Salamito added that recent RBA figures showed the bank had grown its mortgage lending above system for 20 consecutive months, and led the major banks in home loan growth.

  • Rate cuts could be on the table

    The Reserve Bank may be pointing to rate cuts after leaving the official cash rate on hold yesterday.

    The RBA left the cash rate untouched for the 11th consecutive month at its meeting yesterday in Sydney, vindicating economists' expectations. A Bloomberg survey of 22 economists showed unanimous predictions for a continued rate hold, with an AAP poll of 15 economists yielding identical forecasts.

    In its statement yesterday, the Reserve Bank Board left open the possibility of rate cuts. Retreating from its earlier hawkish statements on inflation, the Board stated that inflation could stay within the Bank's 2-3% target band through 2012-13. The Bank further commented that easing inflation could clear the way for a less restrictive monetary policy.

    "An improved inflation outlook would increase the scope for monetary policy to provide some support to demand, should that prove necessary," the Bank said.

  • Liberty cuts commercial low-doc rates

    Non-bank lender Liberty Financial has announced reductions to its commercial low-doc rates.

    For low-doc loans up to $1m, rates will now start from 9.45%, a discount of more than 1%.

    Liberty general manager of commercial finance Suresh Pillai said the decision was part of Liberty’s continuous review of its products to find ways "to better support small business and increase competition in the market".

    "For example, we recently reduced our commercial rates for our SuperCredit loan, and we’ve got other changes scheduled for later this year," Pillai said.

    Liberty Financial's commercial low-docs only require a one page income declaration provided by a qualified accountant, rather than other details such as financials, BAS or bank statements.

    Liberty markets key features of its commercial low-doc offering as being no cash out restrictions, good broker remuneration and loan terms that span from one to 30 years.

    Pillai said the Liberty low-doc loans provided "hassle-free" access to finance for those unable to provide full documentation.

  • Find fraud by knowing your client

    Brokers can do a better job of detecting mortgage fraud by getting to know customers more closely.

    Genworth Financial's financial chief risk officer Paul Caputo said some of the fraud the mortgage insurer sees is "very sophisticated" and would be impossible for a broker to identify.

    However, speaking with Australian BrokerNews, Caputo said the vast majority could be detected through common sense and going through the documentation supplied in the application.

    "Whether it be things like looking through the bank statements, looking for things like the spelling of ‘credit’ which we see is often spelt wrong; these are obvious things that should raise alarm bells. Even looking through payslips and questioning, ‘should a shop assistant really be earning $150,000 a year?’.

    Caputo said that brokers can identify potential cases of fraud by looking at account details, and seeing if there is both salary going in and expenses going out.

    "Often you’ll find salary going in but no expenses going out, so how are they surviving, if all their salary is going into one account but they’re not taking any money out?," he said.

    Caputo said some fraud is more sophisticated - such as identity fraud - where checking passport numbers can help, though he said this goes beyond the role of a mortgage broker.

  • Connective pricing allows for 'mates rates'

    Connective has launched flexible pricing for its white label product which it says will allow brokers to deliver "mates rates" and dial commissions up and down.

    The new pricing structure for the aggregator's recently-launched Connective Home Loans will give brokers control over pricing, allowing them to set rates for individual clients and build commissions around the rates. Connective head of sales and business development Michael Goerner said the structure will enable brokers to tailor product pricing around their commission needs, or even substitute commission for fee-for-service.

    "The product also promotes fee-for-service as brokers can offer clients an even sharper wholesale rate by substituting the commission with a fee, which can be justified by years of interest savings for the client," Goerner said.

    Goerner commented that brokers can even structure the product to benefit their friends, families or staff by offering "mates rates". He said the flexible pricing will also enable brokerages to cater to the individual needs of their businesses.

    "For more established brokerages, the annuity income from trail and the value it builds in their business is important. These brokers now have the opportunity to dial-up trail and scale down the upfront commission, while still delivering a competitive wholesale rate to their clients," he said. "Conversely, a brokerage in its infancy relies on upfront commission for cash flow so they may elect to forgo the trail commission and instead boost the upfront."

  • Bough leaves Westpac, ready for RAMS

    Huw Bough has flagged continued Westpac initiatives to improve its broker offering, as he readies to depart the major bank brand next week for a role as head of franchise at RAMS.

    Speaking with Australian BrokerNews, Bough said there would be a "number of initiatives" rolled out by Westpac in coming months, under the leadership of new head of third party Tony MacRae.

    "I think it is always healthy for there to be change in any institution; different people put a different lens across things," Bough said. "Given the whole bank is totally committed to customer choice, you are going to continue to see innovation from Westpac."

    Bough said he has long held a strong passion for RAMS, having served as head of broker business from 2004 to 2008 before moving across to Westpac as head of third party.

    "I'm really excited about the opportunity to directly lead a team of new and long-term franchisees, and I'm honoured to be able to share the responsibility for driving increased value for stakeholders," Bough said.

    Bough added the brand had survived the GFC. "If we compare RAMS pre-GFC to now, it actually shows the resilience and strength of the brand - it's as strong today as it was before the GFC," he said.

    Looking forward, Bough argues retail brands will play a large part in the distribution of home loans.

    "In today's world, if I looked at the future, I think you are going to see retail brands coming to the fore, and when we look at retail brands, there is none stronger than RAMS," he said.

    "I think it's a brand a customer can relate well to - everyday Australians love RAMS - possibly because of the franchisees we have, they are a great team."

    Bough said the biggest achievement during his tenure at Westpac had been "getting everyone on board" to focus on the customer, regardless of the origination source through broker or bank.

    Bough said this strategy was not in contrast to the local broker relationship, but was an enhancement by giving customers the ability to deal with the bank when they want to, how they want to.

  • Bank wars benefit smaller lenders

    Brokers and lenders are finally beginning to see the effects of mortgage price wars, and major banks are not the sole beneficiaries.

    New research from the Market Intelligence Strategy Centre (MISC) has indicated brokers saw an 11.4% rise in refinancing in the June quarter. MISC has stated that the rise seems to indicate aggressive competitive moves by lenders have accelerated many borrowers' decision to refinance.

    Non-major brands have also seen a spike in activity from their refinancing incentives. The MISC report pointed to the $1,000 rebate offered by INGDirect and a $600 cash back incentive from non-bank lender Homeloans, and said such offers yielded a 13.76% increase in refinancing activity for non-majors, as compared to 10.5% growth for the Big Four.

    MISC commented that rebates and special offers were not universal among regionals and non-banks but had "disproportionately benefited" the lenders.

    Refinancing as a share of broker-written loans also increased in the June quarter, up to 28% from 26% in the December quarter.

  • St. George to look harder at service

    The new head of broker for the St. George group of brands, Clive Kirkpatrick, will be charged with identifying both short and long-term improvements to service as he joins the group.

    Melos Sulicich, who heads up third party distribution across Westpac's St. George, Bank of Melbourne and BankSA brands, said Kirkpatrick had direct responsibility for broker business across these brands.

    "He will have responsibility for driving business and ultimately making the St. George group of brands easier for brokers to do business with so we can build relationship and partnership with the channel."

    Sulicich said part of what Kirkpatrick will need to do is meet with aggregator heads as well as individual brokers in the market, to identify things that can change quickly, and "thing that will take longer to do" to make its proposition more attractive to brokers.

    He identified an increased business development manager headcount as a priority, flagging one new BDM appointment in Queensland and another two in Victoria.

    "We want to grow our businesses BDM base on the ground. The view we took is that we needed to beef up that presence, as it does make a huge difference in this business," he said.

    Sulicich said the bank would keep its broker segmentation strategy, which includes Flame, Gold and Silver brokers, but would aim to "broaden the base of activity we get across the broker segment".

    Sulicich said Kirkpatrick had been appointed after a wide search for a replacement for Steven Heavey. "We had a look around the general market, and spoke to a lot of people. We also had a look internally, and took the view that at this point in time it was the most appropriate move for us," he said.

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