2010 was a challenging year for the non-bank sector – a fact that lends extra weight to The Adviser’s recognition of this year’s Top 10 Originators
There were periods when the property market ran very hot; more often than not, borrower activity was lacklustre, overshadowed by the threat of higher interest rates.
Lenders across the board saw their volume growth slow. Total mortgage sales fell by 10 per cent in 2010 compared with 2009, according to Australian Finance Group.
Australia’s mortgage originators did not escape unscathed and several of this year’s Top 10 reported slow or, in some cases, negative growth.
Some originators, however, used product innovation to substantially grow their volumes and overall loan book.
In fact, while many key banks remained quiet on the product front, the non-bank sector pushed back into high LVR territory and introduced discounted products in a bid to nab greater market share.
Their commitment to the marketplace has not gone unnoticed: According to The Adviser’s latest quarterly sentiment survey, 82.6 per cent of brokers will recommend non-bank products over the coming quarter.
At present, non-banks are struggling to compete with the majors on price, while the bigger lenders have begun to encroach on areas previously occupied by the non banks.
For example, CBA, St George and Westpac have all increased their maximum lending to 95 per cent LVR for new customers. Many of Australia’s bigger players are offering discounted standard variable rates and fee free applications.
Australia’s non-bank lenders have, however, proved to be incredibly resilient. Increased competition from the majors is unlikely to stop them from pushing forward and growing their market share in the years ahead.
MAKING THE GRADE
Despite challenging market conditions, The Adviser’s Top 10 Originators have once again proved their resilience, with many recording unprecedented growth
THERE IS little doubt that 2010 was another challenging year for the non-bank sector.
Battered by the storm of the global financial crisis, many of these lenders have been struggling to keep their heads above water ever since.
Funding pressures and a lack of competitive pricing characterised the year recently ended, and in 2011, these two issues remain arguably the biggest challenges facing the non-bank sector.
Originators rely heavily on securitisation markets, in which pricing is variable and still relatively high in comparison to the levels of the pre-crisis period.
Banks also rely on these markets, but to a much lesser extent because of their deposit-taking functions.
However, while times have undeniably been tough for the non-bank sector, their situation is not all doom and gloom.
In the past six months, the securitisation market has shown some signs of improvement.
In September last year, Homeloans relaxed lending criteria for all its low doc loans.
The mortgage provider said it would cover the cost of Lender’s Mortgage Insurance (LMI) on its Ultra range of low doc loans for LVRs of up to 70 per cent.
“Funding for the low doc market started to open up again late last year, providing us with the perfect opportunity to ease our lending criteria in this area,” says Tony Carn, Homeloans general manager, third party sales.
But Homeloans is not the only originator to have capitalised on improved lender funding conditions.
National Finance Club managed to grow its volumes by 300 per cent in 2010, a majority of which occurred in the latter part of the year.
Improvements to the securitisation market have helped some originators to grow their volumes, while others have managed to achieve outstanding success on their own.
Barnes Home Loans’ loan volumes in 2010 soared by 79.1 per cent in comparison to the previous year’s performance.
The originator attributes much of this success to its ability to rationalise costs and streamline several systems and processes.
A recent period of rationalisation within the originator sector, while painful for many businesses, will be remembered in years to come as a turning point in the development of the non-bank sector.
It is during periods of adversity, when market conditions are tough, that businesses realise their true value proposition and build sustainable operations that can weather future market cycles.
CHANGING THEIR TUNE
This year’s list of Australia’s Top 10 Originators reads like a tale of two cities.
While some, including Barnes Home Loans and Better Mortgage Management, have posted impressive growth figures, others, such as Future Financial, have clearly struggled.
Future Financial’s loan volumes dropped 17.3 per cent in 2010 in comparison with 2009. Despite this, the originator remains bullish about the year ahead.
The company’s general manager, Troy McLachlan, says Future Financial hopes to achieve organic growth of between 20 and 30 per cent in 2011.
Mr McLachlan’s optimism about the future suggests there is strength in the non-bank channel – the likes of which we should, hopefully, see fully emerge in coming months.
In addition, while some borrowers are doubtless uncomfortable using a non-traditional lender, there appears to be little broker resistance. On the contrary, brokers are largely behind the nation’s originators and champion the role that they play in servicing borrowers.
While most brokers realise originators are limited in their ability to match mainstream bank products on rate, they appreciate, and will actively promote, the benefits and alternatives offered by originators.
Their customer service proposition is clearly a winner, as too is their product diversity – in particular for borrowers who struggle to meet bank criteria. However, the originators’ proposition runs much deeper than just that.
A renewed focus on product innovation was a silver lining of the GFC cloud, and in this, mortgage originators are the vanguard.
Higher LVR products, for example, are quickly becoming good business generators for originators in market segments that are currently especially active. These include the investor and first home buyer areas.
Technological innovation is also prominent, with some originators creating portals to better engage broker partners and, consequently, service outcomes.
This year’s ranking shows that Australia’s Top 10 Originators are all – to some extent – focused on these key areas. Some have prepared themselves for future growth, others took the plunge during the GFC and realised significant gains.
The Adviser has once again ranked Australia’s Top 10 Originators based on current performance, taking into account recent market conditions and benchmarking against last year’s results.
To be considered, originators had to meet certain criteria:
Importantly, an originator’s product had to be available for distribution via brokers, with a minimum of 25 per cent written by the broker channel.
For the originators that operate as part of an aggregation group, a minimum of 50 per cent of broker-originated volumes had to be written by brokers outside their associated aggregation groups.
These criteria aim to remove those lending businesses that distribute via a proprietary channel, such as one of the franchise outlets.
Originators were invited to participate in a survey requesting information on loan volumes, number of loans written, loan book size, access to funding, broker distribution and aggregation panels sat on.
The survey also sought information on the size of the BDM support team, geographic presence and staff numbers.
This information was then collated, allowing The Adviser to compare and contrast originators on key business data. Current performance data were analysed and comparisons made with data provided for the 2010 rankings, including the percentage change in loan volumes, number of loans written and total loan book value.
Once the top 10 had been shortlisted, they were ranked based on key business data, with a weighted score applied to each ranking position.
Data used to give the final ranking included:
• number of loans written in 2010;
• value of loans written in 2010;
• extent of an originator’s broker distribution;
• percentage growth in number of loans written compared to 2009;
• percentage growth in loan volume compared to 2009; and
• total 2010 loan book size.
Taking this holistic approach made it possible to determine an originator’s ability to evolve with the market and to maintain consistency in its operations.
These measures provided a good indicator of the strength of an originator’s strategy and the quality of its management. It also highlighted its funding capabilities as well as flexibility in product and policy.
LOOKING FORWARD, LOOKING BACK
CONDITIONS MAY be shifting in their favour, but Australia’s non-bank lenders are still doing it tough.
The non-bank market remains below the sizeable volume of just a few years ago.
According to data from Australian Finance Group, non-banks account for 12.5 per cent of all home loans written – down from 20.4 per cent in 2007.
But while their market share is undeniably lagging, the non banks still occupy a significant position within the broking market.
A recent straw poll by The Adviser found that approximately 82 per cent of brokers view Australia’s non-bank lenders as a viable alternative to the majors.
The Adviser’s December quarter 2010 broker sentiment survey confirmed these data: eighty per cent of brokers claimed they would recommend non-bank products in the coming quarter – almost 7 per cent more than at this time last year.
So, why this discrepancy between broker sentiment and volumes?
Several brokers told The Adviser that many consumers still believe Australia’s non-bank lenders are, in some way, unsafe or untrustworthy.
So, while brokers are not unwilling to work with the non-bank sector, it seems plenty of borrowers are. Some non-banks are therefore ramping up their advertising campaigns in a bid to increase consumer awareness.
Last year, for example, Homeloans significantly increased consumer advertising, with great success.
Consumer awareness of the Homeloans’ brand grew from 8 per cent to 13 per cent on the back of its aggressive marketing campaign, says Tony Carn, Homeloans’ general manager, third party distribution.
Meanwhile, on the pricing front, Homeloans revised its rates in a bid to play Australia’s major banks at their own game, a move that would seem to have paid off for the non-bank lender .
While pricing is certainly not the be all and end all, it does help to put the non-bank sector on a par with the majors, which is why so many of this year’s Top 10 Originators have slashed rates at every opportunity.
In recent months, Mortgage EZY, Homeloans, Australian First Mortgage and National Finance Club have all cut their rates across several products.
Bendigo and Adelaide Bank’s general manager, third party lending, Damian Percy says this spate of rate cuts suggests there are still competitive options available to those who are looking.
The major banks’ decision to move out of cycle with the Reserve Bank in November may bring fresh business opportunities, according to Mr Percy.
“Consumer dissatisfaction with the majors has been growing for some time,” he says. “This opens the door for non-bank lenders. They can sweep in and offer a well-priced alternative with better service.”
Of course, with the majors recently launching a full-blown price war, non-bank lenders may still find themselves priced out of the market.
If this happens, non-banks can still be a viable alternative; they just have to offer something different from the majors – like friendly service and fast turnaround times.
“Non-banks are resilient,” says Homeloans’ Tony Carn.
“While some will inevitably see their volumes slip, following increased pricing competition from the majors, in the long run, the sector will continue to grow its share. Not only does it offer a strong value proposition to consumers, but a strong value proposition to brokers as well.”
RANKING LAST YEAR: 8
Accredited Brokers: 300
Years Established: 10
Flagship Product: My Loan
A frozen securitisation market and, arguably, misguided government intervention in the mortgage market combined to hinder Future Financial’s growth in 2010.
The lender fell from eighth last year to this year’s tenth place in The Adviser’s Top 10 Originators ranking. According to data obtained for the rankings, Future Financial’s loan volumes dropped 17.3 per cent in comparison to 2009, while the number of loans written fell by 21.4 per cent.
Despite negative growth, however, the lender still managed to make the list of Australia’s elite originators.
General manager Troy McLachlan says he is bullish about the year ahead and optimistic that Future Financial can regain the ground lost since 2009.
“We aim to achieve organic growth of between 20 and 30 per cent this year,”
Mr McLachlan says.
“We want to properly position ourselves in the market so that we can absorb any pushback that comes out of the proposed legislative changes,” he says.
“We also plan to maintain a simplified front end offering for introducers that covers most product facets while moving in the background to work with funders to help develop new products.”
NATIONAL FINANCE CLUB
RANKING LAST YEAR: N/A
Accredited Brokers: 100
Years Established: 9
Flagship Product: Propack
Exceptional loan volume growth in 2010 helped catapult National Finance Club (NFC) into The Adviser’s Top 10 Originators ranking.
The lender increased its volume by 300 per cent in the year to December 2010, writing more than 1,500 loans.
NFC’s executive general manager Andrew Clouston says a majority of the company’s success can be attributed to the efforts of its broker partners.
While the global financial crisis saw many borrowers flock to the perceived safety of the big four, he says, brokers never stopped supporting the non-bank sector and they continue to highlight the benefits of using a mortgage originator.
“Brokers have always been a huge advocate of the non-bank sector,” Mr Clouston says. “They understand that non-banks don’t just add to the competitive mortgage environment, they also contribute positively to a broker’s bottom line.”
Non banks traditionally pay higher commissions and offer better customer/broker service, he adds.
NFC plans to increase the support it offers brokers as well as to improve its overall broker service proposition.
But that’s not all NFC has planned for 2011. The group will also continue to automate its lending processes and promote its white-labeling capabilities, Mr Clouston says.
“We plan to broaden our white-labeled product range to include products such as credit cards and insurance.
“We will be promoting these products and services through a wider range of aggregation groups.”
BETTER MORTGAGE MANAGEMENT
RANKING LAST YEAR: 9
Accredited Brokers: 1,720
Years Established: 11
Flagship Product: Low Doc & Full Doc
Better Mortgage Management (BMM) has enjoyed a bullish 12 months, helped along by a series of product enhancements and policy changes.
Throughout 2010, the lender managed to increase its home loan applications and home loan volumes by 13.3 and 13.2 per cent respectively compared to 2009.
The company hopes it can maintain this momentum in 2011.
The Queensland flood disaster is expected to hinder growth in the first part of the year, but Better Mortgage Management’s managing director, Murray Cowan, says the lender should be able to increase its volumes by 60 per cent on the back of the proposed product enhancements.
According to Mr Cowan, the lender plans to develop a low doc product range to ensure self-employed borrowers are still able to access mortgage finance to meet their individual circumstances. BMM also hopes to enhance its full doc range.
“In addition, we aim to give a significant boost to our online resources this year,” Mr Cowan says.
“We will launch our online application form, which has been developed in-house to specifically meet the requirements of our mortgage brokers and the needs of their clients.”
Finally, the company will upgrade its ‘PAL’ (Place a Loan) search engine and redevelop its website to make it more user-friendly.
“We are acutely aware that if we can offer competitive products combined with excellent service, we should be able to take market share from the majors,” Mr Cowan says.
RANKING LAST YEAR: 10
Accredited Brokers: 2,500
Years Established: 17
Flagship Product: Bendigo and Adelaide Bank Construction Loan
Limited liquidity in the mortgage securitisation market did not stop Australian Financial from achieving solid growth in 2010.
The originator managed to increase its business volumes by 11.3 per cent, writing almost $226 million in loans.
Australian Financial’s Russell Henshaw attributes the company’s success to its ability to differentiate itself from the majors.
According to Mr Henshaw, the company does this in two areas: product and service.
“Non banks traditionally provide a better service,” he says. “We realise our customer is initially the broker and then, ultimately, the customer. The big four pay little attention to the broker and concentrate solely on the customer. This ignores the fact that the reason a customer is using a broker is because they do not want direct contact with a major bank.”
Non banks also tend to have a wider product range, better commission structure and customer-focused credit staff, according to Mr Henshaw.
The company will continue to differentiate itself from the majors, he says, and already has plans to increase the number of BDMs on staff and their presence within the broker network.
In addition, Australian Financial hopes to improve communication, both directly and electronically, with brokers.
RANKING LAST YEAR: 5
Accredited Brokers: 2,950
Years Established: 18
Flagship Product: First Home Buyer Low Deposit Low Doc
For Collins Securities, the past 24 months have been all about diversification and differentiation.
In 2009, the non-bank launched its suite of Aurora products, including a first home buyer 95 per cent LVR loan.
Then, in 2010, the lender sought to expand its product range further into niche markets, including investment lending and low doc loan refinancing – areas that the banks have previously abandoned due to funding and other constraints.
Collins now plans to expand its product range for existing borrowers and broker partners.
“We want to add value ... by providing products that they are getting elsewhere at the moment,” says Collins Securities chief executive officer Rob Emmett.
The non-bank lender also plans to add a non-genuine savings first home buyer loan offering.
“We also have enhancements to our low doc range in the pipeline,” Mr Emmett says.
However, difficult funding conditions and a perceived flight to safety by borrowers led to the lender writing significantly fewer loans in 2010 – 793 in total – compared to 962 in 2009.
Undeterred by these results, Mr Emmett says the non-bank is currently gearing up for significant growth and a big year.
BARNES HOME LOANS
RANKING LAST YEAR: N/A
Accredited Brokers: 470
Years Established: 18
Flagship Product: Rate Saver
Barnes Home Loans recorded strong volume growth in 2010.
The non-bank originator achieved 30 per cent growth in the latter part of the year, making it on to The Adviser’s Top 10 Originators ranking for the first time.
Barnes’ executive director Janelle Rayner says the company hopes to replicate its success in 2011.
“The Queensland floods have undoubtedly slowed things down, but we believe the market will start moving again in the second half of the year.
“With that in mind, we are anticipating a further 30 per cent growth in volumes this year,” she says.
The lender aims to achieve this by providing support to brokers and offering a comprehensive product suite, says Ms Rayner.
Currently Barnes sources 99 per cent of its business through the broker channel. However, some brokers are struggling under the new licensing requirements – a problem the company hopes to fix, she says.
“Many of our brokers are professional long-term players,” Ms Rayner says, “but there is a general feeling at the moment that ‘it’s all too hard’. The additional paperwork required for NCCP, and reduced commission, may see good brokers exit the market.
“So we decided to develop a system that simplifies compliance and fairly remunerates our brokers for their time.”
Ms Rayner adds that the lender is currently in negotiations with a number of new funders.
“We are planning to add more lending options in the immediate future. We believe there will be a need for niche products like N-RAS and SMSF loans and we hope to offer both of these products in the near future,” she says.
AUSTRALIAN FIRST MORTGAGE
RANKING LAST YEAR: 3
Accredited Brokers: 5,000 approx
Years Established: 7
Flagship Product: Full Doc Loan
Australian First Mortgage (AFM) is no stranger to The Adviser’s Top 10 Originators, having ranked highly in previous years. This year was no different.
Solid loan volume growth helped AFM secure a position in the ranking for a third consecutive year.
In the year to December 2010, the originator increased its settlement volumes by more than 55 per cent compared to 2009.
AFM national director Iain Forbes attributes the company’s increase in loan volumes to its organic growth strategy.
“We believe there is no point in setting an annual volume target which cannot be achieved,” Mr Forbes says. “Instead, we find that reasonable monthly goals result in much higher annual growth.”
According to Mr Forbes, AFM’s organic growth strategy will be used again in 2011.
Part of the strategy involves improving products and broker service where possible.
Last year, AFM slashed its interest rates on a handful of products when the funding markets gave the company the opportunity to do so.
This gave AFM a significant boost in volumes and product demand.
“At AFM, we believe in higher standards and higher service,” Mr Forbes says. “That’s why we are passionate about our business, our clients and the image of our company in the lending marketplace.”
NATIONAL MORTGAGE COMPANY
RANKING LAST YEAR: 7
Accredited Brokers: 157
Years Established: 15
Flagship Product: Smart Solution Package
Product innovation has helped National Mortgage Company (NMC) secure a top position in The Adviser’s Top 10 Originators ranking this year.
Last year, the lender simplified its product suite and increased its maximum LVR to great success, achieving significant growth both in loan numbers and volumes.
Despite that market success, NMC’s head of wholesale mortgages, Sergio Delvescovo, says the lender has no intention of resting on its laurels.
The company intends to ramp up business volumes during the year with the introduction of a new white label funding program.
The new program, being developed in conjunction with ING DIRECT, will allow NMC to deliver introducers with fully branded products and give them a say in product development, commission rates and processes.
“White label branding has been very successful for us in the past and we are looking to expand this in a major way,” Mr Delvescovo says.
“The program gives introducers certainty around funding, pricing and commissions and is backed by one of Australia’s leading banks.”
Mr Delvescovo believes once the initiative is in full swing, NMC should have no problem in settling $100 million per month.
RANKING LAST YEAR: 4
Accredited Brokers: 4,426
Years Established: 17
Flagship Product: uQuit Variable Fee Free
Mortgage EZY performed strongly in 2010, growing loan volumes by 13 per cent in the 2010 calendar year and achieving second position in this year’s rankings.
Chief executive officer Garry Driscoll said the lender had successfully managed to navigate the tumultuous waters of 2010 to come out stronger and more resilient.
“Non-bank lenders across Australia were faced with a difficult market last year,” Mr Driscoll says. “The government’s actions to increase competition have predictably had the opposite effect and are, in my view, completely irresponsible and short sighted.”
“Thankfully, the sector will be stronger in 2011 because it has come to realise our industry is being manipulated by competing political forces and news bite media.”
Mr Driscoll says the company aims to maintain the level of business volume and growth it achieved in 2010. Mortgage EZY also hopes to increase its approval to conversion ratios and focus on extending the average loan life.
“Keeping costs under control will also become vital in a post-DEF environment,” he says.
According to Mr Driscoll, the removal of exit fees may affect the company’s projected targets, but he is also confident the company can come up with a workable solution to achieving its goals.
One such solution is the development of a broader suite of products, and Mortgage EZY has been working on introducing several niche products to the market. The new product suite further highlights the company’s commitment to the broker channel, according to Mr Driscoll.
“We will continue to partner and support the broker channel in every way possible,” he says.
RANKING LAST YEAR: 1
Accredited Brokers: 8,639
Years Established: 25
Flagship Product: Homeloans Ultra
In the 12 months to December 2010, Homeloans managed to increase by 41.9 per cent the number of loans the company wrote, and to grow its overall loan book by a solid 2.5 per cent.
Homeloans’ general manager of third party distribution, Tony Carn, attributes the company’s exceptional result to its competitive product suite and top quality service.
According to Mr Carn, a broad and well-priced product offering in tune with the needs of customers and the market has always been a focus of the originator.
Last year, Homeloans slashed 0.31 per cent off its full doc MoniPower loan, increased its lending to 95 per cent LVR and said it would cover the cost of Lender’s Mortgage Insurance (LMI) on its Ultra range of low doc loans on LVRs of up to 70 per cent.
These enhancements to Homeloans’ self-branded products were priced in line with the major banks.
But as well as competing with the majors on product pricing and specifics, the originator’s goal is also to meet broker and customer needs in other ways, Mr Carn says.
“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 – that means we can get loans approved quickly and easily.”
While the majors currently account for the lion’s share of the market, there is always room for competition.
Homeloans’ independent research house found recently that 82 per cent of brokers believe non-bank lenders are a competitive alternative to the majors – a sentiment Mr Carn agrees with.
“Non-banks are innovative and resilient,” he says. “The sector has long been dedicated to providing customers and introducers with exceptional service and competitively priced product suites. At the end of the day, the non-bank sector will always be a competitive alternative to the majors because they can adapt quickly to market changes.”
The lender has invested considerable resources into building the brand, and while this is a medium- to long-term objective, Homeloans did see some positive results during 2010, Mr Carn says.
“Our lead volumes increased by 70 per cent, and we saw an increase in settlement volumes for our Homeloans branded products of 61 per cent in 2010 versus 2009,” he says.
BUILDING ON THE BRAND
Despite a strong performance in 2010, Homeloans expects to have an even better 2011 as the company continues to raise its brand awareness with several marketing campaigns.
Last year, the lender 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.
In fact, awareness of the lender increased from 8 per cent to 13 per cent on the back of that campaign.
Mr Carn hopes to build on this level of awareness in 2011 by ramping up its advertising presence across Australia. “Homeloans still has a lot of tricks up its sleeve and we will be using 2011 to rattle a few cages and improve our position in the mortgage market,” he says.
“Snagging market share away from the majors is our number one goal. I think the non-bank segment is in a similar position to the broker market.
“Brokers are currently being squeezed by lower commission, higher benchmarks and continuing aggressive channel conflict. The broker market will continue to grow its market share because of the superior value proposition it provides to the consumer.
We will continue to grow our market share via our strong value proposition to consumers and the broker market alike.”
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