Broker Success

Issue 6

Credit Crisis?

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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 credit crisis as the industry's spring, it's a time to prune dead wood and unwanted growth, it's a time to cultivate our business' so they'll grow strongly. Those brokerage 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.

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Tel: 02 4759-2690 Fax: 02 4759-2696 oasismortgagegroup@gmail.com Web: www.brokersuccess.com.au 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

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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 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 service levels and they value their expertise and time-saving ability. MFAA/BankWest six monthly consumer surveys demonstrate this time and time again. Lenders who ignore this risk alienating 40%+ of their customers who choose to come to them via a broker. While the current times may seem trying, we are seeing nothing new: NZ and UK brokers have faced

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.

structural reviews of commissions and have survived as has the travel agency sector in Australia. Finally let’s not forget the triad of economic indicators are still healthy: interest rates, inflation and unemployment are low by historic standards and we, in Australia, are not suffering a sub prime crisis and recessionary conditions. Phil Naylor is the CEO of the MFAA.

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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 for so many years will not be quickly or easily healed. One need simply look to Japan, the world’s second largest economy, which experienced a credit contraction in the 1990’s from which it is yet to recover. Unfortunately the US does look set for a potentially prolonged recession with house prices and consumption set to fall further; and the UK may not be far behind. 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 holidays, to consolidate their debts and to gear into more investments. Sure it may be a little harder to obtain finance for some applicants; and there may be a little bit more competition between brokers, but the opportunities in our industry still abound. Good practitioners should consider this as an opportunity to further enhance their service offering and to focus on building even better relationships with clients. Australian has not escape unscathed, and arguably we do not deserve to, but our future is bright with a housing shortage, many stocks looking relatively cheap, a generally strong and growing economy, and a future underwritten by Asia. It is definitely not the end of the world, perhaps more-so the end of an era. Paul Elderidge is the CEO of Intellitrain.

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Broker Success - Issue 6 - Page 5

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The Auswest Financial Services Group is a complete financial services provider. Established in 1998 initially providing general leasing products, Auswest Financial Services has significantly expanded and currently provides a comprehensive array of finance and general insurance products. Our constant growth has warranted the creation of four stand-alone businesses; Auswest Loan & Mortgage Options, Ausquip Rentals & Leasing, Ausure Insurance (Newcastle) & Auswest Town & Country Finance (Aggregations) The Head office for the group is located in New Lambton and operates nationally as the processing centre for Auswest Town & Country Finance (Aggregations), Auswest Mortgage & Loan Options and Ausquip Rentals & Leasing . The Auswest Financial Services Group plays a major role in an unparalleled business model which consists of strategic alliances with a number of Mortgage Broking Groups, Accountancy Firms and Individual Finance Brokers. Auswest Town & Country Finance is the aggregation and agency arm of the Auswest Financial Services Group. Accreditation with Auswest Town & Country Finance allows finance brokers to be directly accredited with Auswest with a choice of two options either as a referring broker or a direct agent of Auswest with full rights to trading names and other benefits. Our business purpose is simple; to provide all current and future clients with all their finance solutions, as well as assisting with their insurance. PHONE 1300 855 646 www.auswestfinance.com.au—email- loans@auswestfinance.com.au

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

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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 loan volume means that Hallmark Mortgage Management is able to obtain wholesale funding at very cheap interest rates. The rates are passed on to our broker members who have the flexibility of pricing their loans at rates that are very competitive. Loans via Hallmark Mortgage Management are as safe and secure as a loan from any of the other major lenders.

Additionally brokers are able to access retail lenders via our sub origination agreement 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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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 subprime 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-toshort-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. While I’m by no means an economist I agree with the market’s sentiment and believe rates will plateau. If the RBA doesn’t believe inflation is under control, then rates could indeed head further north, but I envisage only a marginal hike of another 0.25% to settle there. With that said, I do expect (although I do not support) possible continuation of interest rate increases independent of the official cash rate as lenders look to compensate for the repricing of risk and subsequent higher cost of funds from the credit markets. Once again, I believe the extent of these increases will be capped and the credit markets will experience some relief. My personal view is that we are well past the half way mark with respect to the current instability and I’m quite convinced that investor confidence will reemerge within the next 12 months, bringing some much-needed liquidity back into the credit markets. While the credit markets realign there could be some further local fallout however, with some of the smaller fringe funders falling by the way. Moving forward, I also envisage a continued review of credit policies and tightening of parameters (such as reduced LVRs), closer scrutiny on servicing and tightening on assets offered as security for a loan. Regardless of the impact to date and what the lingering ramifications will be, I hold the view that improvement is imminent. Notwithstanding the housing affordability issue (which is a whole other topic of discussion and can’t be covered in this piece), the Australian economy is fundamentally very robust and one of the best performing in the world. We have record low unemployment and there seems to be no end in sight for the resources boom. When it’s all said and done, people need a roof over their head and property will continue to be viewed as a sound investment. People may be sitting on the sidelines at present waiting to see how it all plays out but normality will return to the market, slowly but surely. Peter White is the National President of the Finance Brokers Association of Australia (FBAA).

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Broker Success - Issue 5 - Page 23 of 20

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

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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 poor lending conducted in the USA. These immense problems being experienced in the US, due to the writing of billions of dollars in defaulting sub prime loans, means Australia is experiencing a severe tightening of credit availability. The American loans were funded by investors buying bonds that were backed by these defaulting mortgages and the losses incurred have brought about a massive reluctance of investors to invest in the securitised bond markets. Funding via securitisation for mortgages is all but dead and the non availability of these funds worldwide has caused severe credit restrictions, further impacted by the ratings downgrading of the mortgage insurers who insured many of these loans. The combined impact of the withdrawal of insurance on many loan products and the severe tightening of lending guidelines by the insurers and the banks who now have restricted access to funds, has ruled out easy access to funding for all but the better quality borrowers. Lenders are looking for loans with reduced risk, so availability of high LVR loans has decreased and Sub Prime, No Doc and Lo Doc loans have been totally withdrawn by some lenders. It will take some time for investors and lenders to assess the situation and the changes that will occur over time, whereby the market moves back toward its former position of liquidity. The Australian investment market realises that the problems were not caused in Australia and that the local assets reflect sound investments. There are huge volumes of investment funds – particularly super funds, to be placed and these funds managers will be looking carefully at what can be done with them. That said, it is unlikely we will see much movement in 2008. Bank credit policies will be kept tight and lenders are withdrawing from the residential lending market to the extent of what they can fund from balance sheet or to match run off via repayment or discharges. Most funders have warehouses loaded with assets that they would like to securitise and the few recent securitisations that have occurred have been at large premium prices because the investors are now looking for a higher risk margin for their investments. Many bank funding warehouse lines have been withdrawn due to the uncertainty of when and at what rates the loans can be parcelled and sold off to the bond market (eg Maquarie) The consequences of all of this Rates are up (and possibly still more to come) Lending policies are much tighter Mortgage insurance is harder to get

So whilst volumes are down about 30%, funders are happy with this, and it is not likely to change for the remainder of this year. That said there is still business to be written and good borrowers to be looked after. Batten down the hatches for a rough ride for 2008. The industry will be leaner and tougher in the future but we should see a return to more acceptable conditions in the medium term. Barrie Gaubert is a director of Iden Group.

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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. 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 abovemarket rate increases, for example.

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