2012 was a tough year for Australia’s mortgage originators. The Adviser’s 2013 ranking shows that almost all lenders failed to write more business in 2012 than in 2011
Barnes’ Janelle Rayner said her team had a particularly “difficult year” thanks to increased competition between Australia’s majors.
“At the beginning of the year, we were re-writing more loans than we were writing,” she says. “Our borrowers were refinancing left right and centre because all the major banks were coming to the market with product prices that could not be matched.”
Indeed, competition between Australia’s lenders was fierce last year, with many cutting the interest on their variable and fixed rate products in a frenzied bid to grab market share.
While this hunger for business shows no signs of easing off, there is, a silver lining for Australia’s mortgage originators.
For the first time in recent years, the cost of funds is falling, which can only be good news for the industry.
Access to cheaper funding will allow originators to compete with the bigger players on price – something they have not previously been able to do.
The securitisation market is opening up, and more and more Australian companies are going to the securitisation market, which proves there is a lot of liquidity around.
If this trend continues, the cost of funds will drop further and ultimately make non-bank lenders even more competitive.
Non-bank lenders have lower overhead costs than those of the majors, enabling them to save money, which can then be passed on to borrowers.
With lower rates on the horizon and a pledge of genuine customer service this year’s Top 10 Originators are geared up to offer brokers a genuine alternative to the majors.
NON-BANK lenders continue to provide a competitive alternative to the majors. Through differentiation, increasing innovation, positioning and scale, non-bank lenders are able to provide tailored and flexible solutions to consumers.
Advantedge continues to provide ongoing support to our non-bank lender partners to help maintain and grow their business. This is just one of the reasons why Advantedge has been recognised as Wholesale Funder of the Year for three years running at the Australian Lending Awards.
Congratulations to all of the 2013 Top Ten Originators – this is a fantastic achievement which recognises the industry’s commitment to hard work and dedication to the sector.
TOP 10 ORIGINATORS 2013 - INTRODUCTION DOING IT TOUGH
Australia’s non-bank lenders have had a tumultuous year, but there is light at the end of the tunnel, as The Adviser’s Top 10 Originators ranking reveals
THE GLOBAL financial crisis (GFC) and a poor government decision around switching fees have left the non-bank sector high and dry.
From July 2011, the government decided it was prudent to remove all deferred establishment fees or early termination fees charged on variable mortgage products.
At the time, Treasurer Wayne Swan described exit fees as “one of the biggest roadblocks stopping Australians from getting a better deal for their families”.
The decision to remove exit fees was made to stimulate competition in the home loan sector.
However, the big four banks generally have – or had –much lower fees than Australia’s smaller lenders, including the non-banks and mortgage originators.
Therefore the new law, originally designed to promote competition, ultimately stifled it.
Even those who made this year’s Top 10 Originators ranking have found the going tough.
Australian Financial’s national sales manager, Alicia Carter, says while the lender is “optimistic” about the future, the past 12 months have been “damaging”.
“Watching the market bottom out and just waiting for it to pick up is not a fun place for anyone to be,” she says.
“We put a lot of time and energy into our back-end to ensure we were providing a good service – and we’ve seen a positive response from our brokers to our changes – but it will be good to see the comeback of the good old days pre-GFC.”
Collins Securities’ chief executive, Rob Emmett, echoes that sentiment.
“The government’s decision to remove early termination fees really affected us,” he says.
“That said, I am sure there is not one non-bank lender that wasn’t negatively impacted by the decision. What was done to promote competition ultimately hurt us and gave extra business to the big four.”
According to Mr Emmett, as a result of the decision, Collins Securities spent much of 2012 watching customers refinance out of their products.
“It is really hard for non-bank lenders at the moment,” he says. “We are unable to compete on price and now, more than ever before, it is a price game for borrowers.
“They are seeking the cheapest rate and they are also chasing it.”
Executive director of Barnes, Janelle Rayner, says the non-bank lender also lost “a lot” of business to the majors last year because of the exit fee ban.
“At the beginning of the year, we were refinancing more business than we were writing,” she says.
“We simply couldn’t compete on price, so our borrowers were refinancing out of Barnes and into a major.”
As a result, Barnes struggled to achieve the level of success it had hoped for: “We were optimistic that things would start to turn around, but last year was definitely tough for us,” she says.
Barnes was not alone.
According to The Adviser’s Top 10 Originators ranking, almost every lender failed to improve on last year’s results, with their volumes taking a beating as a result of the intense price war that emerged between the majors and non-majors.
But while Australia’s non-bank lenders failed to compete on price last year and ultimately lost more market share to the bigger players, this tale does have a silver lining.
Over the past few months, wholesale funding costs have decreased notably.
If this trend continues, the non-banks could once again find themselves able to access affordable funding, which would allow them to compete more aggressively with the bigger players.
Vow’s chief executive officer, Tim Brown, says cheaper wholesale funding costs will give non-bank lenders a “much needed” boost.
“There has been talk that the cheaper wholesale funding costs will allow Australia’s big four banks to move their rates downwards – independently of the Reserve Bank,” he says.
“I do not expect this to happen. What I do expect to see is non-bank lenders making the most of cheaper wholesale funding costs and reducing their rates, thus competing with the majors.
“When this happens, I expect to see the non-banks grab back some of the market share they lost during the GFC.”
Many of the originators featured in this year’s ranking are incredibly bullish about the year ahead. RESI chief executive officer Angelo Malizis, for example, has very ambitious plans for the non-bank lender.
“I’m confident we can ramp up our franchisee numbers this year so that we have between 50 and 60 franchisees by December,” Mr Malizis says.
“I am also confident that we will be able to be a little more innovative in terms of products this year.”
Mr Malizis adds that the lender is hoping to develop niche products that are funded by its warehouses.
“The industry is crying out for innovation and non-bank lenders are well positioned to be innovative,” he says. “Our size gives us a certain amount of flexibility, which we can use to create products that really cater to our borrowers’ needs.
“Not all customers are vanilla – so they do not need vanilla loans. They need specific products that can cater to their specific needs – and this is where non-bank lenders come in.
“The market is still tough,” he cautions, “but with funding pressures easing, we have the ability to go into the marketplace, create innovative products not previously seen, and really make our mark on borrowers in the same way we did some 20 years ago.”
Indeed, this year’s ranking shows all of Australia’s Top 10 Originators are primed for growth in 2013.
The Adviser ranked Australia’s Top 10 Originators based on current performance, taking into account recent market conditions and benchmarking against last year’s results.
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.
The survey also gathered 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 2012 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 establish the final ranking include:
This approach made it possible to determine an originator’s ability to evolve with the market while maintaining a level of consistency in its operations.
The criteria help to provide a good indicator of the strength of an originator’s strategy and the quality of its management. They also allow the originator’s funding capabilities, as well as flexibility in product and policy, to be highlighted.
SIGNS OF IMPROVEMENT
Banks now account for more than 94 per cent of all home loans written, according to data supplied by global research firm, RFi.
This figure highlights the effects of the GFC and government initiatives which have made it hard for non-bank lenders to compete on price and, in turn, write business.
Australia’s credit unions, mutuals and non-bank lenders account for just 5.9 per cent of all home loans written, while Originators now account for approximately one per cent of all home loans written – down from more than 20 per cent recorded in 2007.
The crisis pushed these lenders to the sidelines, rendering them uncompetitive. But while some fell away, others persevered.
Those that are left are not only a testament to their own achievements but to the resilience of the non-bank sector.
“2012 was a year that was defined by historically low housing credit growth due to global and local economic factors and subdued consumer confidence, not to mention intense competition in home lending,” Homeloans chief executive Scott McWilliam says.
“However, Homeloans had an unwavering strategic growth focus – and the acquisition of Refund Home Loans assets and the repositioning of our brand to third party brokers are testament to this.
“Whilst we expect current market conditions to continue for some months, we believe there are some signs of improvement.
“We are confident that our focus on the competitiveness of our lending products and delivering a superior service experience to brokers and customers will help drive growth in 2013.”
Ranking last year: 9
Accredited brokers: 270
Years established: 12
Flagship product: SMSF Home Loan
FUTURE FINANCIAL would be the first to admit that 2012 was a hard year for the non-banks.
The lender failed to write as much business in 2012 as it did in 2011. Moreover, it lost a couple of brokers from its workforce – a hard blow for a small originator.
Future Financial’s spirit, however, remains resolute.
Director Paul Hutchinson says he expects to see some “blue sky emerging” in 2013, leading to greater volumes for the lender.
“Last year wasn’t great for us, but we remain optimistic,” he says. “I am seeing some changes in the wholesale funding space which should help all non-bank lenders, including Future Financial.
“More importantly, things are starting to turn around in terms of real estate. We are starting to see some confidence returning in south east Queensland, as well some of the other areas that have been badly hurt during the GFC.”
Mr Hutchinson says there is a feeling of buoyancy out in the market – something the non-bank lender is hoping to capitalise on in the year ahead.
“Ideally, we want to be in this ranking again next year and we would like to be higher positioned,” he says. “That is one of our many goals for 2013.”
The lender’s other aims include spreading the word about the benefits of using non-bank lenders and strengthening its credit and BDM workforce.
Ranking last year: 10
Accredited brokers: 1,000
Years established: 19
Flagship product: SMSF Loan
SLUGGISH CREDIT growth, a high level of attempted fraud and rate chasing borrowers – Australian Financial has faced it all.
Not that the lender has ever complained.
According to Australian Financial’s national sales manager, Alicia Carter, every hurdle the non-bank has had to face has only made it stronger.
“Seventeen years in the industry gives you insight into the mortgage finance market that others may not see,” she says.
“Having long-standing employees and a director means we can navigate our way through tough times and see the light at the end of the tunnel.”
This is precisely what the lender did in 2012. Despite the tough credit environment, Australian Financial managed to grow its loan book and volume of loans written in 2012 in comparison to 2011.
Better yet, it was one of the few lenders to record growth over the past calendar year – a significant achievement given the very aggressive price war embarked upon by the majors.
In fact, Ms Carter says trying to stay in the game while the majors competed on price was the “biggest hurdle” Australian Financial faced last year.
“Keeping up with competitive pricing was difficult,” she says.
But while keeping up with the majors was the non-bank’s primary concern last year, Ms Carter says the lender has a far more “bullish” approach to business in 2013.
“We expect the market to pick up in the second half of the second quarter. This is when we expect to become more aggressive in the marketplace and introduce more products and increase our service offering,” she says.
BARNES HOME LOANS
Ranking last year: 6
Years established: 20
Flagship product: Adelaide Bank Rate Saver
ACCORDING TO Barnes Home Loans’ executive director, Janelle Rayner, 2012 was the lender’s “toughest year to date”.
“The removal of exit fees really knocked us for six,” she says. “In addition, the price war between the majors meant borrowers were refinancing out of Barnes and into a major – causing us to lose money.”
Ms Rayner says the non-bank refinanced more loans in the first part of 2012 than it wrote, which played havoc with Barnes’ bottom line.
“It was the worst six months we have ever experienced,” she says.
But it wasn’t all doom and gloom and Ms Rayner says the lender soon realised there was a niche it could fill in the self-managed super fund (SMSF) area.
“SMSF products are becoming increasingly popular and we are currently in the process of travelling around the country to help educate brokers on how to write these products,” she says.
“The early signs are that brokers are keen to write SMSF products and are happy to write their business with Barnes, which is very promising.
“We expect 2013 to be a lot better than 2012.”
Success for Barnes Home Loans this year would be an appropriate ‘birthday present’, with the lender celebrating its 20th year this year.
“When we first launched the business, we didn’t know how successful it would be,” Ms Rayner says, “but here we are 20 years later and things are looking pretty good.”
Ranking last year: 5
Accredited brokers: 183
Years established: 16
Flagship product: Loyalty Loan
DESPITE GROWING its third party distribution channel last year, Nationalcorp failed to grow its volumes.
Funding pressures and the lingering effects of the GFC meant Nationalcorp failed to write the same level of business in 2012 as it did in 2011.
But the news wasn’t all bad for the non-bank lender.
In 2012, the lender introduced its flagship product, Loyalty Loan, which is unique in the market, according to the non-bank’s managing director Barry Parker.
“The Loyalty Loan is different from what else is out there,” he says. “We are starting to see it gain some momentum and traction with our broker force, so we hope to see this continue into 2013.”
Mr Parker also hopes the lender will gain some additional business this year via its new financial planning arm.
“Last year was tough,” he says. “We weren’t writing the volumes we wanted to, but we couldn’t just sit around and be idle, so we enhanced our proposition.
“We partnered up with a financial planning company, we enhanced our back-end processes and doubled our BDM workforce in the hope that once the market comes back to life we will be ready for action.”
Mr Parker says the biggest challenge for the lender will be promoting the benefits of non-banks to brokers.
“Brokers know who we are and what we can do, but I think there is still some hesitation to use us,” he says. “We need to clearly convey to brokers the benefits associated with using a non-bank lender, and hopefully this will encourage them to send business our way.”
BETTER MORTGAGE MANAGEMENT
Ranking last year: 7
Accredited brokers: 1,451
Years established: 13
Flagship product: Capital Specialist Lo Doc Gold
WHAT WERE THE HIGHLIGHTS FOR YOU IN 2012?
Launching our new Capital Specialist range in October was the highlight, as many of the features of this loan, including unlimited cash out on lo docs up to 80 per cent LVR, were not previously widely available to the broker market.
WHAT WERE THE HURDLES YOU FACED IN 2012?
Competition was again fierce, with major lenders not only keeping their pricing aggressive but also offering cash incentives for borrowers to switch loans. Credit growth across the whole industry was slower than previous years, so we all had to fight very hard for the business we got in 2012.
WHAT ARE YOUR EXPECTATIONS FOR 2013?
We are feeling positive about the first few months of 2013. There are higher consumer and business confidence levels and financial markets have been performing strongly, which should help lower non-bank lenders’ costs of funding.
DO YOU HAVE ANY VOLUME GOALS? We aim to grow both our monthly volumes and loan book by 10 per cent per annum.
WHAT, IF ANY, CHANGES WILL YOU BE MAKING TO THE BUSINESS THIS YEAR?
We have several new initiatives in the works, including redesigning our website, launching a new phone app, upgrading our PAL online scenario search engine and launching our online application form.
WHAT IS THE HARDEST THING ABOUT BEING A MORTGAGE ORIGINATOR?
We are constantly faced with the juggling act of providing competitive interest rates while still maintaining satisfactory margins.
Ranking last year: 8
Accredited brokers: 2,500 (approx)
Years established: 20
Flagship product: First Home Buyer Low Dep Loan &
Low Doc 80 per cent Refinance Loan
WHILE COMPETITION from the major banks was Collins Securities’ biggest hurdle in 2012, it did not stop the non-bank lender recording significant growth in volumes.
According to the company’s chief executive Rob Emmett, the lender had a “remarkable year”, all things considered.
“The exit fee ban definitely hurt business, as did the intense price war that the majors waged last year,” he says.
“That said, we managed to develop a new product that ultimately helped us drive our business forward.”
Mr Emmett says Collins will spend 2013 continuing to develop new and innovative products that cater to a “previously untapped” market segment such as that of specialist borrowers.
“We had some success with the specialist borrowers … so we will continue to build on that,” he says.
In May 2012, Collins enjoyed a significant boost in low doc loan applications on the back of Resimac’s roadshows.
“Those roadshows showed us there was life in that market, so that is something we will continue to look at in 2013,” Mr Emmett says.
NATIONAL FINANCE CLUB
Ranking last year: 4
Accredited brokers: 570
Years established: 7
Flagship products: Full Doc & Lo Doc – Basic, SVR, Pro-Pack, Term loans, LOCs, Offset Facilities, Bridging Finance, Visa Cards, Caveat Loans
WHILE ALL Australia’s non-bank lenders had a tough year, some handled the removal of exit fees and the lingering side effects of the GFC somewhat better than others.
National Finance Club was one of these.
According to executive director, Tony Harris, National Finance Club spent its time completing “important changes and process improvements”, which put the lender in a good place to capitalise on any opportunities that became available.
Those changes included the introduction of the ‘one loan, one process’ initiative to ensure the smooth passage of a loan application through the mortgage origination process.
“Further, the introduction of the Quality Assurance Team has lead to faster identification of missing supporting documentation, leading to a faster approval process,” Mr Harris says.
Finally, customer calls have been centralised, meaning National Finance Club can better manage customer enquiries.
“We will continue to make changes and act on broker feedback throughout 2013 and beyond,” Mr Harris says.
The non-bank’s commitment to acting on broker feedback could therefore be what is behind its securing fourth position in this year’s ranking.
Mr Harris hopes the company can continue its current momentum and climb even higher up the ranking next year.
“Of course, our goal is to be number one,” he says, “but we will be happy if we can continue to grow our book, our volumes and our broker numbers.”
Ranking last year: n/a
Accredited brokers: n/a
Years established: 18
Flagship product: BreakTHRU
WHILE GROWTH is good, in mortgage lending, consistency is just as sweet – just ask RESI.
The non-bank lender continues to write consistently strong volumes.
This is just one of the many reasons why RESI continues to win so many industry awards.
RESI’s chief executive, Angelo Malizis, also attributes the lender’s continuing success to the strength of its team, the commitment of its brokers and the non-bank’s impeccable level of service.
“It is not enough to have good brokers or a good service proposition; you must also have well priced products, flexible home loan solutions and access to a knowledgeable credit team,” he says.
RESI appears to have all of the above, helping it to become one of the leading non-bank lenders in the market.
But while Mr Malizis says the lender strives for consistency in business, he is also bullish about the future and believes now is the time for non-bank lenders to push boundaries.
“Funding costs are improving, which gives non-bank lenders the chance to once again establish themselves in the market,” he says.
“Now is the time for us to be innovative and unique. We have access to cheaper funding, which means we can be sharper on rate. But it is not enough to match the majors on rates; we also have to beat them on service, policy and products.”
The chief executive also plans to grow the non-bank lender’s franchise network, with 50 to 60 franchisees by the end of 2013.
AUSTRALIAN FIRST MORTGAGE
Ranking last year: 3
Accredited brokers: 6,747
Years established: 9
Flagship product: Full Doc Complete Option
AUSTRALIAN FIRST MORTGAGE (AFM) has managed to go from strength to strength.
Over the past 12 months, the lender has managed to grow its loan book, improve upon last year’s volumes and significantly grow its broker force.
AFM, in addition, introduced new funding lines to help get its SMSF product off the ground and grew its portfolio of funds under management to approximately two billion dollars.
And it doesn’t end there. In October last year, the lender announced it had formed a strategic alliance with property investment firm, Forrester Cohen.
That relationship marked the formation of AFM’s second strategic alliance within 12 months, with the lender having previously set up a relationship with SuperShift.
According to AFM director Iain Forbes, the alliances have helped the non-bank provide its brokers with an additional revenue stream and the opportunity to build deeper relationships with their clients.
“When looking to align with SuperShift and Forrester Cohen, Australian First Mortgage were focused on aligning with service providers who could provide our broker customers with a compliance framework that safeguards brokers from any conflict of interest and potential liability issues for referrers,” Mr Forbes says.
“Both organisations provide sound investment advice, whilst giving brokers the ability to generate additional income.”
AFM also used 2012 to expand its SMSF offering, and with great results – 2013 is already shaping up to be another great year.
“We were very happy with our success last year and this year looks even better,” Mr Forbes says.
“Moving forward, we know we need to continue improving our service, and sharpening our rates provide our brokers with reasons to continue using AFM.”
Ranking last year: 1
Accredited brokers: 7,766
Years established: 27
Flagship product: Homeloans Ultra
FOR HOMELOANS, the past 12 months have without doubt been an exciting time.
In 2012, the lender sold its 26.5 per cent stake in National Mortgage Brokers (nMB) to Aussie, providing it with a $1 million profit after tax.
Homeloans, in addition, acquired Refund Home Loans, taking on more than 50 brokers.
According to Homeloans’ chairman, Tim Holmes, sales through that channel are “progressing well”.
So well, in fact, that Homeloans managed to record a $5 million net profit after tax in the six months to 31 December 2012 – $1.2 million more than in the corresponding period in 2011.
But while the sale of nMB and the acquisition of Refund Home Loans boded well for the non-bank lender, not all sales and acquisitions result in business gains.
The Adviser spoke with newly-appointed Homeloans chief executive officer Scott McWilliam to uncover the secrets behind the non-bank’s continuing success.
HOW DID HOMELOANS FARE IN 2012?
2012 was a year defined by historically low housing credit growth due to global and local economic factors and subdued consumer confidence, not to mention intense competition in home lending. However, Homeloans had an unwavering strategic growth focus – and the acquisition of Refund Home Loans assets and the repositioning of our brand to third party brokers are testament to this.
The Refund acquisition enhanced our retail network substantially around Australia – particularly on the eastern seaboard – which helped us significantly expand Homeloans’ branded distribution. As part of the acquisition, Homeloans acquired Refund’s $1.9 billion loan book, plus 54 former Refund franchisees entered into agreements to become Homeloans-branded loan writers.
During the year, we also unveiled a new branding strategy to reflect the company’s progression. It was a strategic move to further position Homeloans to ‘take on the market’. We have repositioned the brand as a true solutions provider to our brokers and consumers, hence the new tagline, ‘Providing Solutions’.
WHAT WERE THE HURDLES YOU FACED IN 2012?
The challenging market, which encompassed low credit growth, subdued consumer competition and intense competition, were hurdles for many lenders during 2012. In addition, the perception of non-banks in the market has proven an obstacle. However, that highlights the need to educate the general market on the strengths and security of non banks like Homeloans. Obviously, changing perceptions takes time and requires consistent delivery and execution on our part.
WHAT ARE YOUR EXPECTATIONS FOR 2013?
While we expect current market conditions to continue for some months, we believe there are some signs of improvement. We are confident that our focus on the competitiveness of our lending products and delivering a superior service experience to brokers and customers will help drive growth in 2013.
WHAT, IF ANY, CHANGES WILL YOU BE MAKING TO THE BUSINESS THIS YEAR?
Our core tenets remain unchanged: we are focused on expanding our business via acquisitions and organic growth, increasing lending volumes through strategic relationships with our wholesale funders and enhancing our product offering.
This has underpinned Homeloans’ performance over the past 12 months and helped differentiate us from our competitors. A key driver will be the expansion of Homeloans’ national distribution footprint as a result of the Refund transaction, in addition to the continued growth and refinement of our product offering.
WHAT DO YOU THINK IT IS THAT MAKES HOMELOANS SO SUCCESSFUL?
We focus on differentiating ourselves from other lenders and, as such, we pride ourselves on providing solutions – for both brokers and customers.
To this end, we have a company-wide philosophy to provide exceptional service which exceeds expectations.
Longevity is also key: Homeloans has been around for almost 30 years, and being the only ASX-listed non-bank lender also underpins our strength.
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