Broker

Success Issue 6

Credit Crisis?

www.brokersuccess.com.au
Credit Crisis
Fact or fiction
Almost every day you can read stories about mortgage stress and the impact the US non
prime lending crisis is having on Australians. In this issue of Broker Success, we asked some
of the industries most experienced businessmen to give their thoughts.
In gardening, spring is the ideal time to prune plants
to ensure strong growth through the rest of the year.
Now the mortgage industry needs to see the current
Non Bank
credit crisis as the
industry's spring, it's Aggregation has
a time to prune
dead wood and arrived!
unwanted growth,
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Those brokerage • Exclusive products
firms that will come
out of this credit
crisis in a strong
position are
managed by
brokers with a half
full philosophy.
They see
opportunity where
others see doom and gloom.
My advice to all brokers in 2008 is to focus on
managing your existing client base and work on
developing strong referral networks that are
relationship not money based.
Forget global and think local and make 2008 the year
of relationships, your clients and bank balance will
love you for it.
Graham Reibelt

Editorial and advertising enquiries

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Publisher
Oasis Mortgage Group Pty Ltd abn: 92 097 503 556

The information contained in this publication is for reference only

and should not be relied upon in any why. The publishers of the
Broker Success and all contributors recommend that any person
considering a mortgage in Australia should obtain independent
legal advice.

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Broker Success - Issue 6 - Page 2
Phil Naylor
Now is not the time to read the newspapers if you want to be
cheered up.
But the media is not known for
often putting a positive spin on
anything and the current
environment which we are
experiencing is being treated no
differently.
For months now we have been
hearing about ‘mortgage stress’ as
if it is a 21st century version of the
black plague about to wreak havoc
in every second household in the
country. In reality while there are
pockets of problem areas in
Australia (and certain suburban
areas in Sydney and Melbourne
have been singled out by the
media), there is no massive
problem. As the Reserve Bank
governor, Glenn Stevens, has
recently noted, the vast majority of
Australians are managing their
debt well. Arrears figures of about
0.25%, albeit an increase on
previous years (around 0.22%),
support his contention.
One of the problems is that
Australians have been living in
relative boom times for the past
decade and a half. Many have
never experienced anything else
and most of us have forgotten what
normality is. In the mortgage
industry we have got used to 20%+
growth per annum. Now that it has
dropped back to 10% or a little
less, the doomsayers are breathing
quietly to themselves and anyone
who’ll listen, the ‘R’ word. The fact
of the matter is that the average
growth rate for housing finance for
the past 30 years is around 10%.
We are just going to have to get
used to being ‘average’ until the
next cycle kicks in.
Brokers however cannot be helped
for thinking they are being hit from
all angles: a business slow down
and now lenders indicating reviews
of commission structures, and then
not too far down the line a greater
intervention in their businesses by
national regulation.
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There is no doubt in
any industry during a
relative boom period,
marginal operators
move in and can
survive but when
things move back to
normalcy (let alone
bad times), they move
out. That will happen
too in the mortgage
and finance sector
and those professional
operators who see a
long term future in our
industry will welcome
that just as they will
welcome those who
are squeezed out
because of non –
compliance with
regulation.
The irrefutable
evidence remains,
irrespective of the
economic and
regulatory climate,
that consumers like
dealing with brokers.
They value their
service levels far more than bank structural reviews of commissions
service levels and they value their and have survived as has the travel
expertise and time-saving ability. agency sector in Australia.
MFAA/BankWest six monthly Finally let’s not forget the triad of
consumer surveys demonstrate economic indicators are still
this time and time again. healthy: interest rates, inflation and
unemployment are low by historic
Lenders who ignore this risk
alienating 40%+ of their customers standards and we, in Australia, are
not suffering a sub prime crisis and
who choose to come to them via a
broker. recessionary conditions.
While the current times may seem Phil Naylor is the CEO of the
trying, we are seeing nothing new: MFAA.
NZ and UK brokers have faced
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Broker Success - Issue 6 - Page 3
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Broker Success - Issue 5 - Page 19 of 20
Paul Elderidge
Sub-Prime – the end of the world as we know it?
There is no doubting the severity of
the credit crisis that now infects
every part of the global financial
system. Hundreds of businesses
have collapsed around the world,
from banks and
mortgage
managers
through to real
estate and
investment
companies; not
to mention
innumerable
investors
experiencing
plunging asset
prices and
disappearing
liquidity.
With trillions of
dollars at stake,
comparisons
being made to the Great
Depression and well publicised
high profile collapses, one could be
forgiven for becoming a little
depressed, as evidenced by
plunging consumer sentiment
surveys around the world.
To try address the credit squeeze
the US Federal Reserve has not
only rapidly reduced interest rates,
but introduced a $150 billion fiscal
stimulus package and effectively
underwritten the entire banking
system with the Bear Stearns bail
out and new credit measures.
Unfortunately a credit orgy of the
magnitude we have been enjoying Good practitioners should consider
for so many years will not be this as an opportunity to further
quickly or easily healed. One need enhance their service offering and
simply look to Japan, the world’s to focus on building even better
second largest economy, which relationships with clients. Australian
experienced a credit has not escape unscathed, and
contraction in the 1990’s arguably we do not deserve to, but
from which it is yet to our future is bright with a housing
recover. Unfortunately shortage, many stocks looking
the US does look set for relatively cheap, a generally strong
a potentially prolonged and growing economy, and a future
recession with house underwritten by Asia. It is definitely
prices and consumption not the end of the world, perhaps
set to fall further; and the more-so the end of an era.
UK may not be far Paul Elderidge is the CEO of
behind. Intellitrain.
So what does this mean
for us as Finance
Professionals? Well to
be frank, aside from
grumblings in relation to
the lowering of broker
commissions and a few
clients being somewhat more
realistic with their asset acquisition
plans, it is largely going to be
business as usual.
Clients will continue to buy and sell
homes, to finance cars and
Do you have a
holidays, to consolidate their debts
and to gear into more investments.
Sure it may be a little harder to health concern?
obtain finance for some applicants;
and there may be a little bit more
competition between brokers, but
the opportunities in our industry still Health Matters
abound.
Australia

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Broker Success - Issue 6 - Page 5
 THE AUSWEST FINANCIAL
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The Auswest Financial Services Group plays a major role in an unparalleled business model which
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Auswest Town & Country Finance is the aggregation and agency arm of the Auswest Financial
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Broker Success - Issue 6 - Page 6
Rocco Massaria
I started to put pen to paper (fingers to keyboard) and wonder
what I could talk about that people had not heard already, well
here goes.
Bettaway Home Loans why deals we would not and today your questions simply and we work
because to me the many Brokers / many of them are no longer in the to achieving what is possible not
introducers I have dealt with over business while we have plans for impossible. How different is for you,
the many years always remind me bigger things. it’s not,
of how we started and that was
Today it is tough but it was no 1. If you are seeing some one for
with a simple idea about something
different to 1999 when Tracy & I the first time don’t do an interview
we knew how to
first started, over the phone make a time to see
do but over the
the public were them face to face, not always
years we
being told that possible but how different are you
became
we would be to the phone converser trying to
complicated.
out the door sell a new phone plan?
Why because
within 12
that’s what all 2. Do not make the answers sound
months and we
the intelligent complicated, you might feel good
could not be
people said we but I can assure you that you have
trusted and
had to do so we lost the deal.
they were
followed. Down
putting there 3. If you say you are going to do
this way left
houses on the something then do it.
here and across
line. Well today
the road and 4. Do not be afraid to say no the
many of the
bob‘s your best advice is the honest advice.
changes out
uncle. Well
there are What about the future well my
considering I am
because of belief is that we will all have a
of Italian
Funders and better business than before why
heritage it was
Mortgage because people still want solutions
strange having
Mangers and to there finance problem that’s why
bob as an uncle
although the they are talking to you .BUT keep it
(I must ask
products are is simple life’s too complicated as it
mum about this)
similar to banks our point of is.
but who was I to question I was told
difference has always been and will
to just follow. Rocco Massaria is a director od
always be about people. If was
Bettaway Home Loans and a
Well I have never been a follower about rate then we would never
past National Treasurer of the
and we have always tried to keep been in business, our business is
FBAA.
things simple and given the honest simple answers to our customers.
advice. Whether it meant walking
What are we doing different, we
away from a loan but keeping our
just keep things simple we answer
integrity in tact I was prepared to
do that. Others have done the

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Broker Success - Issue 6 - Page 7
Hallmark Mortgage Management acts as a mortgage manager for many of
Australia's largest and most respected wholesale home loan lenders. Our role
is to assist small independent home loan brokers obtain access to wholesale
lending at interest rates normally only available to the bigger players in the
home loan market.
a lower rate can be given
to the customer or higher
commission can be taken.
This opens up a lot of
opportunity for a broker
as they can market a
product at a rate that suits
their needs.

Hallmark Mortgage
Management has the
responsibility of managing
the loan approval process
as well as assisting the
wholesale funder to
manage the loan after
settlement.
By working as a co-operative with smaller
brokers the effect of the combined monthly Loans via Hallmark Mortgage Management
loan volume means that Hallmark Mortgage are as safe and secure as a loan from any
Management is able to obtain wholesale of the other major lenders.
funding at very cheap interest rates. The
rates are passed on to our broker members Additionally brokers are able to access retail
who have the flexibility of pricing their loans
lenders via our sub origination agreement
at rates that are very competitive. and receive close to 100% of the upfront
and trail commissions. Brokers have the
Brokers can sell standard variable rate loans option of choosing a flat fee per loan of $250
between 7.03% and 7.35%. The amount of per loan (on settlement) or a monthly flat fee
commission received will vary depending on of $500. Apart from these
the rate the loan is sold at. As volumes charges, 100% of the upfront and
increase the delivery rate received from the trail commission paid by the
wholesale funder will decrease meaning that lender is passed on to the broker.

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Broker Success - Issue 6 - Page 8
Peter White - FBAA
An end in sight
With the string of recent interest
rate rises taking hold,
dislocation of credit markets
and the repricing of risk due to
the fall-out from the US sub-
prime market, it’s no secret the
mortgage and finance industry
has experienced better days.
FBAA National President, Peter
White, however, believes that
while it’s unlikely things will turn
around in the immediate-to-
short-term, the worst is behind
us.
It seems as though you cannot
pick up a newspaper or
turn on the television
without reading or
hearing about the doom
and gloom affecting the
Australian housing and
mortgage market. While
it’s true that the market
conditions are not all
together rosy at present,
I do believe we have
seen the worst of what’s
to come and we should
slowly start to see a
more positive landscape
emerging.
Let’s first take a look at
interest rates. The
general consensus is
that the recent interest
rate rises are starting to
take effect with consumer
confidence and spending adjusting
accordingly. Given this, it’s widely
anticipated that we won’t see the
RBA further increase official rates.
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For more information, click this symbol
While I’m by no means an liquidity back into the credit
economist I agree with the market’s markets.
sentiment and believe rates will
While the credit markets realign
plateau. If the RBA doesn’t believe
there could be some further local
inflation is under control, then rates
fallout however, with some of the
could indeed head further north,
smaller fringe funders falling by the
but I envisage only a marginal hike
way. Moving forward, I also
of another 0.25% to settle there.
envisage a continued review of
With that said, I do expect credit policies and tightening of
(although I do not support) possible parameters (such as reduced
continuation of interest rate LVRs), closer scrutiny on servicing
increases independent of the and tightening on assets offered as
official cash rate as lenders look to security for a loan.
compensate for the repricing of risk
Regardless of the impact to date
and subsequent higher cost of
and what the lingering
funds from
ramifications will be, I hold the view
the credit
that improvement is imminent.
markets.
Notwithstanding the housing
Once again,
affordability issue (which is a whole
I believe the
other topic of discussion and can’t
extent of
be covered in this piece), the
these
Australian economy is
increases
fundamentally very robust and one
will be
of the best performing in the world.
capped and
We have record low
the credit
unemployment and there seems to
markets will
be no end in sight for the
experience
resources boom.
some relief.
My personal When it’s all said and done, people
view is that need a roof over their head and
we are well property will continue to be viewed
past the half as a sound investment. People
way mark may be sitting on the sidelines at
with respect present waiting to see how it all
to the plays out but normality will return
current to the market, slowly but surely.
instability and I’m quite convinced
Peter White is the National
that investor confidence will re-
President of the Finance
emerge within the next 12 months,
Brokers Association of Australia
bringing some much-needed
(FBAA).
- Tel: 1800 728 601
whenever you see it.
Broker Success - Issue 6 - Page 9
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Broker Success - Issue 5 - Page 23 of 20
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David Gouge
There are now great
opportunities for funders
who really get their acts
together and treat third
party intermediaries
(brokers and/or mortgage
managers) as part of their
permanent fabric of
existence.
The word “really” is the key –
including attitudes, systems
and loyalties.
Funders who openly favour
direct business and treat third
party channels as a tap to turn
on or off now have a
reputation risk applied to them
by intermediaries.
Intermediaries in the business for the long term may
therefore do well to have a long memory.
David Gouge is the Managing Director of Merchant
Mortgages.

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Broker Success - Issue 6 - Page 11
Barrie Gaubert
There is an old saying – the USA gets a cold and we get the flu. So if the USA has
influenza, where does that leave us?
We are unfortunately paying for the ruled out easy access to funding Most funders have warehouses
poor lending conducted in the for all but the better quality loaded with assets that they would
USA. borrowers. Lenders are looking for like to securitise and the few recent
loans with reduced risk, so securitisations that have occurred
These immense problems being have been at large premium prices
availability of high LVR loans has
experienced in the US, due to the because the investors are now
decreased and Sub Prime, No Doc
writing of billions of dollars in looking for a higher risk margin for
and Lo Doc loans have been totally
defaulting sub prime loans, means their investments. Many bank
withdrawn by some lenders.
Australia is experiencing a severe funding warehouse lines have
tightening of credit availability. The It will take some time for investors been withdrawn due to the
American loans were funded by and lenders to assess the situation uncertainty of when and at what
investors buying bonds that were and the changes that will occur rates the loans can be parcelled
backed by these defaulting over time, whereby the market and sold off to the bond market (eg
mortgages and the losses incurred moves back toward its former Maquarie)
have brought about a massive position of liquidity. The Australian
reluctance of investors to invest in investment market realises that the The consequences of all of this
the securitised problems were not - Rates are up (and possibly
bond markets. caused in Australia still more to come)
Funding via and that the local
securitisation for assets reflect - Lending policies are much
mortgages is all sound investments. tighter
but dead and the There are huge - Mortgage insurance is
non availability of volumes of harder to get
these funds investment funds –
worldwide has particularly super So whilst volumes are down about
caused severe funds, to be placed 30%, funders are happy with this,
credit restrictions, and these funds and it is not likely to change for the
further impacted by managers will be remainder of this year. That said
the ratings looking carefully at there is still business to be written
downgrading of the what can be done and good borrowers to be looked
mortgage insurers with them. after.
who insured many Batten down the hatches for a
That said, it is
of these loans. rough ride for 2008. The industry
unlikely we will see
The combined much movement in will be leaner and tougher in the
impact of the 2008. Bank credit future but we should see a return
withdrawal of policies will be kept to more acceptable conditions in
insurance on many loan products tight and lenders are withdrawing the medium term.
and the severe tightening of from the residential lending market Barrie Gaubert is a director of
lending guidelines by the insurers to the extent of what they can fund Iden Group.
and the banks who now have from balance sheet or to match run
restricted access to funds, has off via repayment or discharges.

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Broker Success - Issue 6 - Page 12
Sherman Ma
For over eight months now, not a day goes by without some news related to
the current credit crisis, as it continues to impact customers, lenders and
brokers.
In the past few months,
weʼve seen lenders exit
the industry while
others are fighting for
survival by restricting
their lending or
reducing staff. Some
lenders have even had
to stop lending across
some or all of their
product lines, leaving
brokers and customers
out in the cold.
By contrast, Liberty
has been able to
weather the crisis
much better than
others and continues to
offer a full suite of
products, across
residential and
commercial mortgages,
motor vehicle and
receivables finance.
While we feel for those
who have been
impacted, the fact
remains that some
recent business
practices were simply
unsustainable.
Standards were compromised as
many lenders resorted to
questionable, short-sighted tactics.
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In contrast, our business has been
designed and built to operate through
the good times and the bad. In fact,
we have been able to raise over $1.5
billion in new funds since the start of
the credit crisis. We remain ready and
committed to support those brokers
who are equally focused on building a
high quality, sustainable business for
the long-term.
When the dust will settle is anyoneʼs
guess, but what is certain is that our
industry will almost certainly never be
the same. Lenders will exercise more
scrutiny about who they lend to and
which brokers they will support with
the limited funds available. Brokers
will also need to carefully select their
lenders and consolidate their
relationships with these lenders.
Fortunately, there will always be
demand for finance and those
businesses with sound fundamentals
and the right partnerships will be able
to take full advantage of the enormous
opportunities that will emerge in the
not-too-distant future.
Sherman Ma is the founder and
Managing Director of Liberty
Financial
Unfortunately, some customers are
now paying the price with above-
market rate increases, for example.
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Broker Success - Issue 6 - Page 13
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Broker Success - Issue 6 - Page 14