Top 10 ORIGINATORS, 2010

The Adviser unveils the nation's leading originators for 2010.

LIQUIDITY RETURNS, ACTIVITY PICKS UP

After seeing its market share drop sharply over the last three years, originators have staged the beginnings of a comeback in 2010.

While funding remains tight, securitised lenders’ warehouses are being replenished as markets start to thaw. Securitisation is again beginning to stand on its own two feet without the need for support from the Australian Office of Financial Management (AOFM), which had been so critical over the previous couple of years.

In addition to improvements in the capital markets, the injection of fresh balance sheet funding into the wholesale pool has further boosted the non-bank sector. With greater liquidity at its disposal, the non-bank sector has stepped up activity.

Originators are again doing what they do best – providing competition and product innovation to the broker channel and this is clearly valued by brokers.

The Adviser’s quarterly sentiment surveys have consistently revealed that over 70 per cent of brokers say they plan to recommend non-bank products. Whether these intentions come into fruition is immaterial – there is clearly strong broker sentiment towards the non-banks.

Over the coming year there will be significant opportunities for originators to engage the broker channel. But where pricing was once at the forefront of the originator’s offering, an older, wiser sector will now look to compete with greater effect on service, policy and innovation.

While there has been some movement in the rankings for this year’s Top 10 Originators, it is interesting to see that most of last year’s groups have held their place, highlighting stability and a strengthening sector.

JIM HALL

Publisher

The Adviser

WELCOME TO THE NEW WORLD

As the world emerges from the GFC, there are still a number of challenges faced by lenders even though liquidity is gradually improving.

The securitisation market is anticipated to re-emerge next year, providing opportunities for banks and non-banks to raise funds. However, the pricing of funds is and will remain comparatively higher than pre-GFC. So although liquidity in securitisation markets will gradually improve, the imminent return of the non-bank sector, funded via securitisation, is unlikely.

The cost of funds issue is faced by all lenders but more so by non-bank lenders as they do not have access to deposits and short term money markets like ADIs. This will remain a significant hurdle in the short to medium term.

While the market has experienced a disproportionate shift in lending to the four major banks, there is an enormous opportunity for alternative brands to challenge this and compete on product and service.

Advantedge is fully committed to the mortgage management industry and continues to develop new products and solutions that will reinvigorate the industry and have a positive effect on competition.

Because of our strong funding position we are able to develop a range of compelling product offerings that are competitively priced, but also differentiated by the superior service levels we offer.

We want our customers to be able to provide a service that is committed to putting clients first and make borrowing as simple and easy as possible.

We also recognise that the introduction of stricter regulations will have a significant and lasting impact on the industry.

As the industry evolves, we believe successful originators will need to build capabilities to provide guidance and advice across broader financial solutions for customers. We are investing in this area and see this as an exciting opportunity for the future. Our partnership of

The Adviser’s Top 10 Originators 2010 holds testament to our focus on, and ambitions for, the origination sector in the period ahead.

DREW HALL

CEO

Advantedge Financial Solutions

GROWTH DESPITE ADVERSITY

Australia’s mortgage originators will rebound from the economic slowdown as strong as ever, with renewed vigour and a redefined market proposition

There's little doubt that 2009 was a challenging year for the nation’s originators.

Funding pressures, a lack of competitive pricing combined with a flight by borrowers to the perceived safety of the mainstream banks, impacted heavily on the non-bank sector.

The overall number of businesses actively offering loans dropped considerably, so too did the loan books of many originators as customers refinanced to mainstream lenders – reflected in part by their market share increase over the period.

Interestingly, however, a pool of originators was able to grow in spite of market conditions. Some achieved this – take Better Mortgage Management and Australian First Mortgage – through rationalising costs and focusing on core business matched with streamlining systems and processes, others, such as Firstfolio, through acquisition.

The recent period of rationalisation in the originator sector, while painful for many businesses, will be remembered in years to come as a key turning point for the development the non-bank sector.

It is during periods of adversity – when market conditions are tough – that businesses truly realise their value proposition and build sustainable operations that in the future can weather market cycles.

REINVENTING ORIGINATION

There’s no doubt that the non-bank sector will look retrospectively at 2009 and realise that it was a watershed year – an important period in shoring up the future of non-bank lenders in Australia.

This year’s Top 10 Originators ranking highlights a sector in a holding pattern. While some originators have posted impressive growth figures, others have clearly struggled under the strains of the GFC.

What is certain is that the foundations for solid and consistent growth are evident – and that there’s indeed strength in the channel.

Additionally, it would appear that there’s little broker resistance to using non-traditional lenders. The opposite actually holds true. Brokers to the large extent are firmly behind the nation’s originators and champions of the role they play in servicing borrowers.

While realistic that there are constraints, in some cases, to originators’ ability to match mainstream bank products on rate, brokers appreciate – and will actively promote – the benefits and alternatives offered by originators to their customers. It’s also actively promoted at aggregator level.

Originators’ customer service proposition is clearly a major winner; as too is the diversity in product – in particular for those borrowers that struggle to meet bank criteria. But the originator proposition runs much deeper.

A silver lining to the GFC has been the renewed focus on product innovation – of which mortgage originators are at the fore.

Higher LVR products, for example, are quickly becoming good business generators for originators in those market segments that are currently active – investors and first home buyers, for example.

Technological innovation is also a major focus – with some originators creating portals to better engage broker partners and consequently service outcomes. One only needs to look at this year’s ranking to realise that Australia’s Top 10 Originators are all, to one extent or another, focused on these key areas. While some have been steadying the ship for future growth, others have grabbed the bull by the horns over the period of the GFC and realised significant gains.

So how did The Adviser establish this year’s raking and which factors influenced the final standing?

METHODOLOGY

Unlike the 2009 ranking – which analysed originator performance solely in 2008 – the 2010 ranking was able to examine the current performance of an originator taking into account recent market conditions as well as benchmarking that against last year’s results.

Through analysing an originator’s performance through this holistic view, The Adviser was able to determine an originator’s ability to evolve in line with the market as well as how closely it was able to maintain consistency in its operations.

This collective view gave a good indicator of the strength of an originator’s strategy, the quality of its management plus the depth of staff and personnel. It also highlighted its funding capabilities and access to funding, as well as flexibility in product and policy.

To be considered for a Top 10 Originator ranking originators had to meet certain criteria.

Importantly, an originator’s product had to be available to be distributed via the third party channel ( i.e. by brokers) and that, in theory, any broker could write their product – which removed those lending businesses that distribute via a proprietary channel, such as franchise outlets.

Originators were invited to participate in a survey that requested information relating to loan volumes, the number of loans written, loan book size, access to funding, broker distribution, the aggregation panels it sat on as well as the size of its BDM support team, geographic presence and staff numbers, amongst others.

This information was then collated, giving The Adviser the ability to compare and contrast originators on key business data. As well as analysing current performance data, comparisons were made on the data provided by originators for our 2008 ranking – including the percentage change in loan volumes, the number of loans written and total loan book value.

Once the Top 10 Originators were shortlisted, they were ranked comparatively based on key business data, with a weighted score applied to each ranking position. The data used to give a final ranking included:

• Number of loans written in 2009
• Value of loans written in 2009
• Extent of an originator’s broker distribution
• Percentage growth in the number of loans written compared to 2008
• Percentage growth in loan volume compared to 2008
• Total 2009 loan book size

BROKERAGES BACK THE NON-BANK OFFERING

Aggregation and brokerage groups are increasingly supporting originators as an alternative to the banks

While the majors managed to increase their share of the mortgage market during the global financial crisis, it seems the pendulum may again be swinging back to the non-bank sector.

The sector emerged from the crisis a little worse for wear, but ready for battle.

According to the Australian Bureau of Statistics, the non-bank sector now accounts for 11 per cent of the market – a small but important improvement on the 10 per cent it held in October 2009.

And this is just the tip of the iceberg.

The broking industry is ramping up its support for the non-bank sector, with aggregators encouraging their brokers to diversify their lender base to include mortgage managers and mortgage originators.

THE PROOF IS IN THE PUDDING

Non-banks give both brokers and borrowers choice – the backbone of the broking industry’s value proposition.

Aggregation groups have recognised that leading originators can represent stable partners as they often have multiple funding sources – and many of them have direct access to wholesale bank balance sheet funding.

Moreover, with less restrictions on their lending policies, originators are able to tailor products to specific market needs. This targeted approach can be valuable for aggregation groups looking to provide their brokers with a broad range of solutions for prospective clients.

The GFC forced every lender to re-evaluate its risk profile, and for the banks, in some instances, this meant pulling back from certain areas, such as self employed borrowers and those looking for high LVR products.

The non-banks jumped on this opportunity, with many tailoring their suite of products to cater to those niche markets that again fell outside the scope of the majors.

But aside from a more nimble approach to lending, the fact that originators pose little or no channel conflict sits well with many groups.

Fewer lending channels can mean that originators don’t face a flood of branch-based business, which can often lead to slower turnaround times for brokers.

Choice Aggregation Services chief executive officer Brendan O’Donnell says sharp turnaround times are often just as important to some borrowers as a product’s pricing.

For this reason, Mr O’Donnell says he can see the non-bank sector making a return to form this year, clawing back some of the market share that was lost during the GFC.

“When you add the tightening of bank policy over the last two years and the more draconian approach that some lenders have taken to the broker market, it is only to be expected that brokers will swing towards a non-bank sector with little or no restrictions and some very competitive products,” Mr O’Donnell said.

“At the end of the day, brokers and the non-bank sector have a high level of mutual dependency and no real channel conflict, and this will always be a driver for growth of the non-bank sector’s appeal to the broker channel.”

TOE-TO-TOE

As brokers and borrowers start to see the non-bank sector as a safe and viable alternative to the majors, mortgage managers and originators will find the confidence to go toe-to-toe with the big four.

And, according to Mr O’Donnell, if that was to happen, it would signal the beginning of a new era of competition.

He says brokers should always welcome fresh competition in the market.

“In any business there are considerable dangers in being reliant on any one supplier, and believe me, it’s no different for brokers,” he says.

“As a ‘rule of thumb’ I have always encouraged brokers to avoid exceeding around 20 per cent market share with any one lender.”

A fact Mortgage Choice’s chief executive officer Michael Russell agrees with.

According to Mr Russell, the non-bank sector brings one very important thing to the mortgage industry – competition.

He says a competitive lending market is absolutely essential for today’s homeowners and tomorrow’s homebuyers to ensure they have a healthy choice and product innovation.

Mortgage Choice recently added non-bank lenders Homeloans, Liberty Financial and Credit Union Australia to its lender panel, signalling its support for diversification and competition in the mortgage industry.

While non-bank lenders continue to find it tough to compete with the pricing offered by the big banks, Mr Russell says the response he has had to the latest non-bank panel additions, suggests there is growing demand for their products and services.

“All of our recent panel additions are demonstrating signs of healthy growth and we are receiving encouraging feedback from our franchisees,” he says.

“As markets continue to thaw, we would expect to see the re-emergence of other non-bank lenders.”

According to Mr Russell, the non-bank sector has been caught in limbo over the past 36 months thanks to limited investor demand for mortgage-backed securities.

However, with the market well and truly starting to return from its hiatus, he expects it won’t be long before brokers start to see a greater amount of competition.

“The best part about the non-bank sector is its ability to challenge the majors,” he says.

10. Australian Financial

Australian Financial (HLCA) experienced a drop in loan volumes, loans written and overall book size over 2009.

Despite the drop in these key indicators, the originator’s managing director Matt Carter says the company did incredibly well to retain its position as a Top 10 Originator through the recent tough economic period.

Moving forward, the company hopes to improve on 2008’s performance and grow its loan book and customer database.

“We hope to grow the business both organically and through acquisitions,” Mr Carter says.

While the recent economic slowdown has impacted the mortgage originator, Mr Carter says the company’s greatest success last year was its ability to “successfully adapt to the changing economic climate”.

“We used last year to integrate our planning and lending divisions, reestablish the brand in the market place and build a solid base on which to grow the business,” he says.

9. Better Mortgage Management

The GFC drove innovation across the mortgage industry – including mortgage originators as they sought to better engage brokers and empower their client servicing proposition.

Better Mortgage Management is one originator focused on creating a better interface with brokers, launching its Place A Loan (PAL) online search engine.

The search engine allows its brokers to find an answer to their loan scenario online without having to contact a BDM.

“The implementation of PAL has managed to save both our brokers and our staff a lot of time,” Better Mortgage Management managing director Murray Cowan says.

“This online tool has ultimately helped improve our servicing times, which is one of the biggest challenges we face moving into 2010.

“January 2010 was our biggest month for loan applications since 2007, so we expect our volumes to really rocket this year. With that in mind, the biggest challenge for our business will be to maintain our service standard benchmarks.”

Overall, compared to 2008 the originator performed steady throughout 2009, with the growth in the number of loans written and total loan volumes increasing 5.3 per cent and 7.3 per cent respectively.

8. Future Financial

It’s been a big 12 months for Future Financial with the restructure of the company’s product offering and introducer database.

Established nine years ago, the company has managed strong performance over 2009, with a 37.1 per cent jump in the number of loans written from the year prior, reflecting strong overall volume growth. Its loan book however was down on 2008’s results.

Future Financial director Paul Hutchinson says the biggest challenge over the next 12 months will be to educate the wider community that the non-bank sector is a safe, strong, and secure alternative to the majors.

“We need to get all the non-bank lenders and mortgage managers to stand together and educate the community,” Mr Hutchinson said.

Key to the company’s growth in the year ahead will be the further consolidation of its introducer database. “Our mission is to continue to receive quality business from quality introducers,” Mr Hutchinson says.

“We aim to maintain and further enhance our position as one of the premium privately-owned mortgage management businesses in Australia.”

7. National Mortgage Company

National Mortgage Company performed well last year despite a drop in volumes and the number of loans written.

According to the lender, an improvement to its servicing capabilities have been a major win for 2009, which will hold the business in good stead over 2010 and beyond.

Head of credit and risk operations Jeff Chapman said the lender’s paperless application process has helped cut red tape, thereby improving servicing levels. On top of that, the company has been able to maintain strong funding lines with a set of reputable Australian wholesale providers.

Looking forward, Mr Chapman says the company aims to lift its profile, provide marketing support to its introducer base, while continuing to develop and support its staff.

“We want to remain a market leader within a quality field by continuing to stay relevant and add value to the businesses of our third party introducers,” he said.

6. Mortgage House

The GFC and a frozen securitisation market were not enough to stop Mortgage House from having a strong year, posting a 27.3 per cent growth in loan volumes as well as a hike in the number of loans written.

The originator managed to maintain its retail presence throughout the downturn and is currently gearing up to expand its retail operations further over the course of the next financial year.

Its managing director Ken Sayer says Mortgage House will be recruiting more brand partners and home loan centres throughout 2010 in a bid to broaden its geographical presence.

“We want to extend our reach in the regions we currently operate in, while also expanding into other states and territories – strengthening our presence in the market and community,” Mr Sayer says.

However, expanding its retail presence is just one of Mortgage House’s business goals for 2010.

“We also want to make our website an online solution for our customers,” Mr Sayer says.

“The website will be interactive and provide both our customers and visitors a place where they can easily source a wide range of information and answers at the click of a button, while providing a self-service tool and tracking system – keeping them in control and fully informed throughout the entire [loan] process.”

5. Collins Securities

For Collins Securities, the last 18 months have been all about market differentiation. With the launch of its Aurora Range of products, including a first home buyer 95 per cent LVR loan, Collins has set its sights on this market segment and going where the banks won’t.

“Delivering the message to the market that Collins offers a unique product range that the banks and other lenders don’t, or can’t, provide is important,” Collins general manager Allan Willoughby says.

“We have been working extremely hard to differentiate ourselves in the market by providing loans in niche markets that have been abandoned by the banks due to funding and other constraints.”

A focus on a targeted market sectors has been one of the key drivers behind the company’s solid results in this year’s ranking, with growth in the number of loans written and loan volumes increasing 24.6 and 50.8 per cent respectively on 2008’s results.

Mr Willoughby says while the company’s focus currently lies with first home buyers, investment lending and low doc loan refinancing, it also aims to support its 3,200 broker network in maximising sale opportunities and improving service levels.

Building referral relationships is an important part of this aim.

“We will continue to build a sound distribution network with likeminded referral partners,” Mr Willoughby says.

4. Mortgage Ezy

Despite the GFC and reduced non-bank market share, Mortgage Ezy has continued to grow its loan book over the last 12 months. However the total number of loans written and overall volumes was down however on the figures supplied by the non-bank lender in 2008.

According to the lender’s general manager Garry Driscoll, while the opportunities for the sector are numerous, there are a number of obstacles to overcome.

“The biggest challenge for non-banks is regaining consumer confidence in the wake of the GFC,” Mr Driscoll says.

Key to achieving this is the ongoing development of a originator’s resources, including its people – which will lead better consumer engagement.

“While we have our normal financial goals around business volumes and profitability, our overriding objective will be around our staff,” Mr Driscoll says.

“We want to create the right environment for them to grow professionally and personally.”

3. Australian First Mortgage

Australian First Mortgage not only managed to survive the downturn, it has, in fact, grown during it.

The originator’s loan volumes surged 15.8 per cent on 2008’s results; the number of loans written have also spiked by 20.5 per cent. To highlight its better than expected performance over 2009, AFM recently developed a new logo and slogan: ‘higher standards’.

But it would appear the company’s success in 2009 is just the start of a sustained period of business growth.

AFM’s managing director Tanya White says the mortgage originator is “poised to offer our business partners a greater level of service, product offering and technology heading into 2010”.

According to Ms White, the company wants to grow organically throughout 2010, while ensuring the quality of loans written.

“We also aim to implement new technology, both internally and externally, to streamline lending processes and turnaround times,” she says.

Moreover, Ms White says AFM aims to offer first class service, competitive turn-around times and a business model that is “transparent”.

“We want to give our brokers and clients the ability to deal directly with the decision makers,” she says. “The passion we share for our business is like a healthy ‘gene’ that flows along to our valuable staff and business alliances.”

2. Firstfolio

Firstfolio has enjoyed a bullish 12 months, helped along by a series of business acquisitions.

The mortgage originator has achieved a 123.9 per cent year on year increase in loan volumes as well as a 151.6 per cent spike in the number of loans written – securing the position as the nation’s number two ranked originator.

Firstfolio completed the acquisition of the $3.5 billion mortgage management and aggregation business, First Chartered Capital, late last year followed by the $2 billion mortgage-managed loan book of Loan Services Australia.

Chief executive officer Mark Forsyth says while the company is yet to feel the full weight of its latest acquisitions, it has benefited from the mergers both in terms of economic leverage and commercial expansion, with its mortgage managed loan book climbing to $4.5 billion in 2009 compared to $2.4 billion in 2008.

“It’s enabled us to create a geographical footprint,” Mr Forsyth says, adding that the company has been able to build new distribution channels through new franchised offices. And there are more acquisitions in the pipeline, though Mr Forsyth remains tight-lipped about whom those targets are.

“We will continue to look for profitable and strategic acquisitions over the next 12 months, but the market will have to wait and see what we do,” he says.

Firstfolio attributes its good results to growing its wholesale business, as well as its marketing techniques.

“We’ve had a strong web presence over the last 12 months and have noticed the impact of this on our business,” he says.

According to Mr Forsyth, the company’s web presence will help it capitalise on any opportunities that are starting to emerge in the market – such as potential property investors.

“The mortgage market is good and will continue to perform. Investors are back in the market. People need a place to live, and so will keep borrowing,” he says, adding that the company aims to increase its market share.

The company is aiming to reach $100 million in settlements each month and boost its profits to $15 million for the 2010 financial year – up markedly from the $3.5 million the company posted last year.

“We think business will accelerate going forward. The outlook is indeed very positive.”

1. Homeloans

Fast turnaround times, competitive rates and a massive 40 per cent jump in loan volume growth, have helped Homeloans LTD establish itself as a viable alternative to the majors and reaffirm its position as australia’s highest ranked mortgage originator

In the six months to 31 December 2009, Homeloans managed to ramp up its business performance, recording a 75 per cent jump in net profit after tax on the previous reporting period.

Homeloans general manager of third party distribution Tony Carn attributes the company’s $4.6 million net profit and other recent successes to its competitive rates and service.

The lender maintains its number one position in this year’s Top 10 Originator ranking, built on the solid bedrock of continued strong loan volume growth as well as a surge in average loan size – which jumped 46 per cent from 2008’s results.

A strong well-priced product offering in tune with the needs of the market has always been a key focus of the ASX-listed originator, which continues to drive good business.

Most recently, the company lowered the interest rates on its flagship range of Premium home loan products by 10 basis points for LVRs less than 65 per cent, effective this March.

But Mr Carn says as well as competing with the majors on price, the originator’s goal is to meet broker and customer needs in other ways.

“As well as offering competitive pricing, we aim to position ourselves as a market leader in service and turnaround times,” he says.

“We are a mono-line business, so there is no channel conflict, which means we can get loans approved quickly and easily.”

Mr Carn says while the majors currently account for the lion’s share of the market, there is always room for competition.

The company’s independent research house recently found that seven out of 10 consumers were open to dealing with both traditional and non-traditional lenders – suggesting that more consumers are recognising the non-bank sector as a viable alternative to the big four.

Brokers are also beginning to realise the value of using non-bank lenders.

According to Mr Carn, they understand the impact fast turnaround times can have on their customers and bottom line, while still delivering a product that can save the average borrowers thousands of dollars over the life of a loan.

With a lot of positive sentiment towards non-bank lenders floating around, Mr Carn says now is the perfect time for lenders to educate brokers on the other benefits of using non-traditional lenders.

“Non-bank lenders provide unrivalled service. Moreover, we provide a greater array of home loan products,” he says.

Because Homeloans sources its funding through a range of partners, Mr Carn says it has access to a broad spectrum of products and can offer great depth of credit policy.

BRAND AWARENESS

Despite their strong performance throughout 2009, Homeloans expects to have an even better 2010.

The company is currently raising its brand awareness through various marketing campaigns. Last month, for example, it launched an advertising campaign in Queensland that drew on the star power of football legend Shane Webcke.

“From the first time the advertisement was shown in Toowoomba, we got an overwhelming response,” Mr Carn says.

“We want to be the next big non-bank lender and challenge consumers’ perceptions of the big banks. We want them to realise there are plenty more fish in the sea.”

And it seems the lender’s Queensland-based advertising campaign is just the tip of the iceberg.

Mr Carn says Homeloans still has a lot of tricks up its sleeve and will be using 2010 to rattle a few cages and improve its position in the mortgage market.

“We are always looking at new ways to improve ourselves and our offering. We don’t want to compete with the majors on price, but we do want to compete and win against them in terms of service and diversity of products,” he says.

“I’m excited to see what the future holds for us.”