ROUNDTABLE - Challenges and Achievements

The top 5 Elite Business Writers of 2011 weigh in on issues that include lender competition, loan volumes, the impact of NCCP and the major challenges of 2011, as well as offering insight into what lies ahead in the coming months

PARTICIPANTS

Justin Doobov, Managing Director, Intelligent Finance

Jeremy Fisher, Director, 1st Street Home Loans

Mark Davis, Director, The Australian Lending & Investment Centre

Moshe Moses, Director, Niche Lending

Steve Matsoukas, Principal, Defiance Consulting

IS CURRENT LENDER COMPETITION BOOSTING LOAN VOLUMES? WHY?

JEREMY FISHER I personally don’t believe lender competition has boosted loan volumes for the broker market. While I have seen a growth in the volume of loans being submitted in the past quarter, I do not put this down to lender competition.

MOSHE MOSES Obviously whenever competition exists between the lenders for market share, whether it is in the form of policy, product or pricing, it has the direct benefit of increased loan volumes. The current ‘price war’ between the lenders increases benefits for customers as it allows those who have a sizeable loan amount to benefit by refinancing their facilities or, better still, to have a look at their existing facilities and gauge whether they are really receiving the best pricing from their current lenders.

STEVE MATSOUKAS I don’t believe the competition between lenders is boosting loan volumes; it certainly has not increased the amount of applications we are receiving. Rather, all we are seeing from this battle is market share changing from one lender to another.

JUSTIN DOOBOV Since lender competition has heated up we have had an increased volume of enquiries from new clients who want to explore refinancing options. I think this is due to the clients now thinking about their loans more. They are becoming ‘front of mind’ as it is mentioned nearly every day in the media.

MARK DAVIS I don’t think current lender competition is necessarily boosting loan volumes. There is less competition out in the market which means the major banks are larger players now. I deal with the major banks so this is good for brokers that do, but if you are dealing with second- or third-tier institutions then my assumption is that loan volumes would be down. As a whole, loan volumes are down but for the four major banks there is less competition which in a way has also increased their loan volumes.

HAS NCCP HAD A NEGATIVE IMPACT ON YOUR BUSINESS? WHY?

JEREMY FISHER 1st Street has always been operated with diligence and transparency and the NCCP has had no negative impact on the business. The changes were easily incorporated into our loan processes.

MOSHE MOSES The NCCP has not had a negative impact on my business given that we always practised ‘responsible lending’ well before the legislation was introduced. We never offered lenders or products that didn’t suit the client’s goals that they required to be achieved. In addition, we always ensured well before the introduction of the NCCP that our clients provided all compliant documentation and full disclosure of why a certain lender and its product were suitable to their requirements.

STEVE MATSOUKAS I don’t see the introduction of the NCCP as having an adverse impact on business. It is one of those things that has to be done. I actually think it will be positive for the industry as it’ll weed out the brokers that are doing the wrong thing.

JUSTIN DOOBOV I believe that regulation of the industry will ultimately be a good thing as it should get rid of the cowboys. That being said, the current format of the NCCP is bombarding clients with lots of paper and often the more paper you provide a client with, the less they will read, so in some respects it is doing the opposite of what it is meant to do. The regulations seem to be more focused on disclosing a broker’s and respective parties’ commissions in a transaction rather than making sure the right loans are selected.

MARK DAVIS No, there has been no impact as far as client numbers are concerned. While there is a little bit more work involved and it is more regulated, I think this is good for the industry.

WHAT HAS BEEN THE BIGGEST CHALLENGE FOR YOU AND YOUR BUSINESS THIS YEAR? HOW DID YOU OVERCOME THIS CHALLENGE?

JEREMY FISHER The banks’ tighter credit policies made it more challenging to get clients’ desired loan amounts in some cases, so in-depth knowledge of loan products and lending policies proved crucial. With the changes to licensing and regulations, I have had to dedicate more time to working on the business and it has taken more effort to effectively manage my time.

MOSHE MOSES Trying to grow our business through hiring and training the appropriate staff to support all facets [of our operations] – from administration, loan writing and maintenance to IT support – as well as growing our broker numbers from three to seven were the biggest challenges for us. The same could be said for our sister company, Niche Financial Services, which complements our lending/mortgage business through the sale of respective financial planning and risk insurance. We have been able to overcome these challenges by perseverance, sticking to our goals and surrounding ourselves with appropriate staff, brokers and an IT consultant. This involved totally overhauling our technology; introducing guidelines on how to manage files/customers and cross sell financial services; and weekly and one-on-one training with regular feedback.

STEVE MATSOUKAS The biggest challenges we faced have been to do with lenders’ stringent credit scoring practices. We have found lenders are just putting their blind faith in credit scoring and are not willing to be flexible on the decision. If the client does not credit score there is very little that we as brokers can do to change the decision. Valuation shortfalls have also become more common. Valuers are a lot more cautious when doing valuations due to changes in the marketplace. We attempted to overcome this by working harder to understand the basis of lenders’ credit scoring and ways we can work around this. I think a lot of the brokers are still coming to grips with it.

JUSTIN DOOBOV We were lucky in that we did not have any challenges businesswise over the past year as our volumes kept increasing. That said, I think the main challenge for Intelligent Finance is to ensure we keep our high service levels as we go through our next growth phase. We have done this by implementing processes and checkpoints to ensure we offer consistent service to each client.

MARK DAVIS The biggest challenge for our business this year has been getting the lenders to understand investment lending and how to assess particular investment clients. We have overcome this challenge by catching up with the credit areas of each of the institutions and discussing our requirements as an investment lending business. We have tried to work through the issues in an attempt to convert the lender into an investment type bank, as opposed to a product home lending area.

WHAT IS THE BIGGEST THREAT TO BROKER BUSINESS AT THE MOMENT?

JEREMY FISHER Many brokers are finding it tough to stay in business due to the new regulations and lender policies. While these new changes are a positive move for the industry as a whole, many brokers, especially those who are new to the industry, are facing big challenges to remain in the business.

MOSHE MOSES I believe the biggest threat to the broker industry at the moment would have to be the sole reliance on mortgage commission and the sale just of home loan products.

STEVE MATSOUKAS The industry’s inability to recruit new people is not working in our favour. It is getting harder and harder for people who are not in the broking industry to get into the broker business. They need to have MFAA membership, Cert V and will also soon require their Diploma of Financial Services as per NCCP requirements.

JUSTIN DOOBOV I believe the biggest threat would have to be channel conflict and the lowering of commissions. Many lenders are starting to retrench staff and are setting high targets for branches and mobile lenders. The lenders’ margins are being squeezed because of the pricing war each is trying to win. The margins that brokers make off each transaction are very tight at the best of times, so if the margins get too tight it could make the broking industry not viable.

MARK DAVIS I would have to say the biggest threat to the broker business would be loan margins. If loan numbers aren’t of a significant level it is going to be very hard for brokers to continue within the industry.

WHERE DO YOU SEE YOUR BUSINESS HEADING IN THE NEXT 12 MONTHS? ARE THERE STILL BUSINESS OPPORTUNITIES FOR BROKERS?

JEREMY FISHER Hopefully, 1st Street’s consistent growth will continue in all areas of the business – home loans, commercial loans and risk protection. There are still opportunities for brokers as there is always some level of demand in the market, but brokers need to be professional, dedicated and up-to-date to remain in the industry.

MOSHE MOSES We see our business being regarded not just as mortgage brokers but rather as true financial consultants who offer a holistic financial service experience that far exceeds that offered by the lenders in their retail and private bank space. Brokers will always have business opportunities because, unlike the lenders, we are not single bank-branded [product providers] and we can offer our clients split banking if necessary under one umbrella. At Niche Lending, we make the lenders fit our clients and not as the lenders have it, where the client must fit the lender.

STEVE MATSOUKAS I expect our business to increase dramatically as a result of our being more professional in what we are doing as a group as well as to pick up market share from other brokers. There certainly are a lot of opportunities out there for brokers, provided they actively pursue all avenues and don’t sit back and wait for business to come to them. The best way to create these breaks is by speaking to referrers and getting extra leads.

JUSTIN DOOBOV If you stand still in our industry you go backwards so we are always looking to grow. The reason the broker market took off in the first place was that bank clients wanted a better deal and better service. Most lenders are currently trying to cut back costs, which is in effect affecting their service levels. This means now is a great time for brokers to fly their original flag again, given most banks and lenders cannot compete with the individual service and advice a broker can offer.

MARK DAVIS In the next 12 months we are hoping to take our business from $300 million in settlements this year to $400 million next year. We are also looking to grow the number of writers we currently have and will be expanding the lending part of our business to further service top end clients. For brokers who are good at what they do there are massive amounts of business opportunities in the market and amazing incomes to be earned.

WHAT DO YOU EXPECT FOR BORROWER ACTIVITY IN 2012? WHICH MARKET SEGMENTS DO YOU EXPECT TO BE MOST ACTIVE?

JEREMY FISHER I expect borrower activity to increase in 2012. It has been a few years since the last property boom and with the unstable stock market and strong home rental market, there could be an increase in investment property loans.

MOSHE MOSES We believe that our clients’ activity in 2012 will remain consistent, if not grow, for a number of reasons such as reduced broker numbers, greater emphasis on financial services and the greater depth of our offering. We still believe the residential market will remain quite active as a result of the current competitive pressures of the lenders and their growth of market share.

STEVE MATSOUKAS I think we will see an increase in borrower activity but again, it will only be brokers who make an effort and do some work who will increase their business. I think first time buyers, who have been inactive in the last three to six months, as well as investors who have been staying away because they are not sure where pricing is going, will start coming back into the market. I definitely foresee first time buyers as being the most active segment in the immediate future.

JUSTIN DOOBOV We are very lucky to have an established business and loyal client base so from a company perspective I believe there will still be a lot of borrower activity in 2012. I think the investor market will pick up and so too will the market for properties greater than $2 million. We have received a lot of enquiries from both of these segments.

MARK DAVIS My expectations for 2012 are that borrower activity will increase over the next six months compared to 2011. The increase in activity will be in response to rental yields increasing, property values hitting the bottom of the market and clients becoming more comfortable with buying, based on their understanding that the market is on the turn. I believe investors who should have purchased over the last six months will play a big part in the market in the upcoming six months and as confidence grows, the home loan market will start to pick up around June to September 2012.