The current lending environment is an opportunity for the third-party channel and “solutions-based brokers”, the CEO of a brokerage and a non-bank lender BDM have said.
Speaking on a Bluestone-partnered episode of The Adviser’s In Focus podcast, Lucky Money CEO Louis Velasquez and Bluestone BDM Jerome Porcia noted that the reduced risk appetites and tighter credit policies at major lenders have been a boon for non-bank lenders and brokers alike.
Bluestone revealed last month that the “decreased risk appetite” of major lenders has helped the non-bank achieve $2 billion in settlement growth since reentering the market.
This, it said, was largely driven on its capitalisation of the decreased risk appetite from major lenders in response to the financial services royal commission.
According to broker and CEO of Lucky Money Louis Velasquez, he has found that the tightening up of credit has meant that “clients do come to broker for solutions”.
“You then shift the focus… from a broking point of view to go: ‘We are solutions-based brokers. You have a certain circumstance and we need to find a solution for that’. [That is] versus: ‘We need to find the cheapest rate’.”
The broker added that he specialises in non-prime clients after he found that he had “a lot of friends and family that had got into certain circumstances that were out of their control and a lot of the banks were pushing them away”.
“So, my business has shifted towards that near-prime space, which now seems like it is everyone because of that [tightening of risk appetite at the banks],” he said.
Mr Velasquez added that while non-prime clients and non-prime loans were historically perceived as the “Wild, wild west”, where borrowers had 30 or 40 defaults, more and more borrowers are classifying as non-prime in this market.
“Now, with the changes, the bank can classify you as near-prime with two late payments on your mortgage and that’s enough to get the loan pushed away. And, if for example the client has multiple liabilities, you put them in such a better financial position by actually consolidating all their debts and understanding their story to begin with, and that is the importance [of brokers],” he said.
The broker said that he had found that he was initially only using Bluestone for one or two loans a month, but “now with the changing circumstance, that does become more frequent”.
“Bluestone does come top of mind if someone is getting difficulty getting a loan across with the banks,” he said.
Speaking on In Focus, Bluestone BDM Jerome Porcia added that lenders such as Bluestone were attractive to brokers as they can “workshop” deals with the broker and credit analysts before a loan is submitted.
He elaborated: “[These] aren’t the run of the mill home loan applications, there is a story behind it. These clients have gone through a life event, for whatever reason. Usually we’re a solution for a self-employed customer who doesn’t happen to have their financials in order. So, a broker would bring them to Bluestone for a couple of years, they get their [repayment] conduct in place and get their rates reviewed through Bluestone anyway but if that client was going to go to a mainstream lender, they can do that, because we’ve provided them with that short-term solution to clean their financials up.”
Wishes for the new year
Looking forward to 2019, Mr Porcia said that he thought there would be “more scrutiny around the industry”, a continued focus on compliance and verification of documentation, and an increased tightening in the credit landscape.
He explained: “I think definitely the landscape is just starting [to change]… I think it will get tighter and I think if you want to have a broking business in the next couple of years, right now is the time to action a change in the business to reflect a potential change in the future.
“I think we will be on this ride for the next couple of years… But I think it is a good thing for the industry,” he said.
“I would encourage all the brokers out there to really use your BDMs because we are really crucial at this point in time because [brokers] are doing a lot more work now for the same pay. It’s a lot harder. The compliance part of it, it got a lot harder. So, you’re doing triple the work for the same pay.”
Mr Velasquez agreed, adding that his three wishes for the financial industry for 2019 were: “clarity in regards to credit and banking” and lending policies; licencing of Lucky Money, and for “external parties to really understand the benefits of using a broker”.
He added: “That for itself has not really been looked at, the actual benefits of someone using a broker. So, I think that is what I would like to happen next year. Will that happen? I don’t know. But it will be interesting to see that clarified and understood.”
Meanwhile, the Bluestone BDM said his three wishes for the new calendar year were: “uniformity across all the lenders around what brokers need (i.e., living expenses) to make it ‘a better playing field, a fairer playing field’; for him to help 10 brokers ‘get to the next level in their business’, and for Bluestone to continue its growth trajectory.
“A clear message to our brokers out there: early 2019 there will be some great exciting new policy niches that we are bringing out to the market. Watch this space – products, policy – it’s a pocket that we want to create and a pocket we want to play in for 2019,” he said.
Find out more about how the lending landscape has changed and how Bluestone is working with brokers in The Adviser’s In Focus episode: Why client needs have shifted to favour the non-banks, sponsored by Bluestone.
[Related: Non-bank capitalises on major bank retreat]