A mortgage manager boost?

POST APPROVED PP255003/06906$4.95 ISSUE 6.23

December 2009

Advantedge’s recent product enhancements should deliver a much-needed boost to the troubled mortgage manager sector, according to key participants – though not everyone is convinced.

This mixed assessment follows Advantedge introducing a raft of product enhancements into the market at the end of November – including the availability of

“Other wholesale funders, other than Advantedge, still exist on mortgage managers’ panels, so the pie is now bigger.”

Clouston said that having 85% to 90% of the market was “just too much” for the majors, and customers needed an alternative.

“And this is what NAB offers to Advantedge and in turn to brokers and customers,” he said.

Iain Forbes, director at AFM, said the move was both “significant and comforting” in that it restored a level of competition against the banks.

“In recent times there were some concerns with the non-banks. However, the fact that Advantedge is now supporting the non-banks restores the confidence the marketplace has been looking for from them,” he said.

Business volumes at AFM are already up, and so confident is Forbes that this trend will continue, that he has begun recruiting credit staff.

However, Gerald Foley managing director at National Mortgage Brokers, called the move “still just major bank dominance disguised as some form of false consumer competition”.

True competition would only be back when lenders, who were non-aligned with the majors, could sit in the market with competitive products, he said.

The jury is out on the ‘advantages’ of Advantedge’s products

No withdrawal symptoms

Big Two, not Four

Life after default?

The removal of the First Home Owner Grant won’t easily undo the beneficial impact it’s had on Australian house prices

The banks’ annual results show the dominance of the ‘Big Two’ and the strong position brokers continue to hold as a key origination channel

Our credit reporting model and ‘wild west’ approach to defaults by some lenders can have a devastating impact on people applying for loans

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Page 26>>Page 28 cont.>>

80% (full) and 60% (low-doc) LVRs without LMI, competitive construction and vacant land loans and a range of new fixed-rate terms.

Managing director at Club Financial Services Andrew Clouston described the move as being “very significant” and that it meant mortgage managers could now “get out there again, put a face in the market and attract more customers”.

“For many mortgage managers out there who have been doing it tough over the past year…this is a shot in the arm,” he told AB.

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Banks have the ‘sweet spot’Australia’s major banks are in a “sweet spot” that will last for a “long time”, according to Alan Kohler, author of investment newsletter The Eureka Report.

In an article written for the ASX e-mail newsletter listing the “10 big investment opportunities and threats” for investors in 2010, Kohler wrote that while the “good times” enjoyed by Australian banks wouldn’t last forever and that eventually the mortgage securities market would return and provide the big banks with some competition, this would take years to occur.

Kohler added: “Perversely, even though banking excesses caused the crisis, it has been a boon for Australia’s banks. Their market share has increased to total dominance as non-bank lenders have all but disappeared along with the market in residential mortgage-backed securities.

“At the same time, the expected massive increase in bad and doubtful debts did not materialise, and from next year, banks will be writing provisions down and back into their profits as windfall gains.”

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Second tier not deadDespite reports to the contrary, the second banking tier is not dead and can revive its fortunes by focusing on niche areas and using the broker channel.

These were the views of Dean Rushton, chief operating officer at Loan Market, and Gerald Foley, managing director of National Mortgage Brokers, after research group CoreData declared the second-tier banking sector “dead” based on its declining share of the residential lending market.

CoreData (sister company of brandmanagement) calculated that Westpac and CBA (including subsidiaries St.George and BankWest) now hold nearly half of all outstanding residential lending by value (48.9%),

compared with 45% at the start of the year, and are gaining still.

Tony Crossley, CoreData head of mortgages and insurance, said regional banks had significant challenges in competing and were therefore providing no barrier to the ‘big two’ banks continuing to gain mortgage market share.

However, Rushton was optimistic and said second-tier lenders were “there for the long haul”, and with business and consumer confidence returning would have a greater opportunity to compete.

While cost of funding remained higher than the majors, Rushton said opportunities for second-tier lenders lay “around their service proposition and product niches”.

“They need to position themselves as situation-specific, for example low-doc specialists, and back that up with the right procedures to succeed with this type of lending,” he said.

He added that having a “mature broker channel” would allow these lenders to deliver their products to market quickly across a broad range of borrowers.

nMB’s Gerald Foley agreed with Rushton, saying that as the general economic climate recovered, second-tier banking (not including organisations controlled by a major bank) would improve.

Foley was also in agreement on the importance of brokers in aiding this comeback. To regain market share, he said, second-tier lenders needed to “stay in the game [and] identify that the best source of distribution for them is to access the broker market”.

While Foley expected the GFC would have a long-term impact on the lending landscape, he said “as is always the case” there would be opportunities for leaner players to pinch some ground from the dominant players due to greed and laziness.

Gerald Foley

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currently sold through the broker channel, some broker groups have expressed an interest in this green loan and we are talking with them about how that might work,” he said.

The bank’s interest-free green loan, worth up to $10,000, is part of its support of the federal government’s Green Loans Program. Hanlon said Westpac had a long track record around sustainable practices and is recognised as a global leader in this regard.

The loan will help borrowers install solar, water saving and energy efficient products to aid in reducing greenhouse gas emissions. Hanlon said the bank expected its customers would understand the benefits of the

Westpac to get personal with brokers

Cuts to lender commissions along with stringent re-accreditation criteria and increasing regulation have

services to provide a healthy and competitive training ground for brokers.”

All broker administrative processes will be tracked “in real time environments” as a consequence of eChoice’s proprietary software being integrated into the new aggregation platform.

Forsyth’s objective for the new aggregation business is to double the business being written across its platform after the first year, and double it again after the second year.

Firstfolio appeals to ‘Best in Class’

initiative, and would want to participate in it.

This is not Westpac’s first foray into the green space.

Hanlon said that Westpac has a range of green initiatives, from its own paper-saving commitment to providing products with a sustainable element, such as the ‘EcoNomical Living’ home loan and Landcare term deposit launched in 2006.

The new green loan is an interest-free personal loan product. It attracts no monthly service, establishment or prepayment fees and is repaid over a maximum of four years.

According to Westpac, the loan program has the potential to help 360,000 Australian households save on energy and

Peter Hanlon

and transparent” pricing tiers. “Brokers that qualify for our super broker tier will be charged a flat fee and encouraged to sub-aggregate by setting their own pricing structures to establish their own networks. They will then receive a scale of commissions according to the quality of business being written and converted,” said Russell.

Outside of the top-tier category, the payment structures fall into three additional tiers, based on performance quality.

They are a 95/5 split, a 90/10 split and – for new entrants – an 85/15 split.

“This new model means that we are likely to have fewer direct relationships with brokers, which will enable us to specialise in providing dedicated services under the provision of Firstfolio One,” said Russell.

“We also want to attract brokers who have an interest in developing the next generation of top performing brokers. Firstfolio has a wealth of specialist education and support

Westpac introduces green loanPersonal loan, up to

$10,000 limitNo service, establishment or

prepayment feeZero per cent interest Maximum period of four years

Fast facts

‘Best in Class’ brokers targetedFocus on transparency and

reward for performanceFour-tier pricing structure Top-tier brokers able to sub-

aggregate; set their own pricing structure

Brokers to have real-time access to all administrative processes

Aggressive budget expectations

Key points

Brokers may soon be able to offer clients Westpac personal loans.

Following the launch of its new ‘green’ personal loan, Peter Hanlon, Westpac’s group executive for retail and business banking, told AB the product had created a lot of interest from both customers and from the broker channel. “Although Westpac personal loans are not

combined to propel brokers into reviewing their relationships with aggregators, according to Firstfolio’s chief executive officer, Mark Forsyth.

The comment followed Firstfolio’s launch of a boutique aggregation model – targeting ‘Best in Class’ and next generation brokers.

The new business, branded Firstfolio One, will deliver an aggregation service targeted at brokers writing upwards of $5m per quarter.

The move reflects Firstfolio’s intention to become the aggregator of choice for A-grade brokers looking for new growth opportunities, according to Andrew Russell, Firstfolio’s general manager for third party and product distribution. Firstfolio One offers four “clear

Mark Forsyth

water bills. Customers can also access the government’s free home sustainability assessment.

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Craig Binnie, a journalist with the Herald Sun, quoted research nearly six months old when suggesting to readers of the popular tabloid that the mortgage broking channel was decreasing in popularity among borrowers, when in fact the opposite is true.

“Fewer home loan seekers are using a broker to find them a mortgage, new figures show,” he wrote in an article published on 7 November.

He then quoted a survey carried out by Retail Finance Intelligence (RFI) in June 2009 which found that 31% of respondents had used a mortgage broker to apply for their home loan – down from 36% in June 2008.

While this figure was correct, he failed to mention that according to the report – RFI’s Consumer Attitudes to Mortgage Brokers 2009 – consumers’ use of brokers, as a trend, had in fact “risen sharply” over the past three years – up to between 38% and 41% compared to a range of 22% to 36% when looking further into the past.

A case of broker bashing or just poorly researched?

Indeed the 2009 Genworth Mortgage Trends report, released in July and based also on RFI research, put the size of the broker channel at a healthy 41% of all mortgages.

And Binnie would have surely reported a different story had he considered the widely read JP Morgan Australian Mortgage Industry Report (Volume 10), released on 6 October.

According to Fujitsu Consulting estimates contained in the report, the proportion of outstanding mortgages originated by brokers has stabilised back above 38%.

The report’s executive summary said that that “brokers again picked up share by directing business to the major banks, despite the trimming of commissions which took place earlier in 2008”.

Reports aside, a quick glance through the 2009 annual results of the major banks reveal that brokers continue to write significant amount of business for the country’s dominant lenders (see news analysis on page 22 for more on this).

On the back of strong investor demand, FirstMac recently successfully upsized, placed and priced its 2-2009 RMBS issue.

No stranger to the process, this was the 15th such transaction overall completed by the mortgage finance lender and the third with the AOFM as the cornerstone investor.

The latest transaction was initially launched at $400m but was increased to $470m following greater than anticipated investor bids.

In the end all were Australian- based investors; however there

was initial interest from one UK and another US-based investor.

The lead arranger was HSBC Bank, and included $220.14m from the AOFM as a cornerstone investor – with the additional $249.86m being provided by external investors.

This level of external investment brings the AOFM investment to less than 50% of the total transaction, indicating a return of confidence to the RMBS market.

In finalising placement, FirstMac’s chief financial officer James Austin said the non-bank lender remained committed to passing the benefit of the federal government’s investment in RMBS through to home buyers and investors.

“This is the third allocation of [the $8bn] AOFM funds for investment in FirstMac-issued RMBS, and enables FirstMac to provide Australians a competitive and quality alternative to the traditional banks in the residential mortgage sector,” he said.

The joint leads and joint book runners to the $470m transaction were ANZ, HSBC, Macquarie Bank, and Westpac.

FirstMac wins investor confidence, places RMBS issue

James Austin

Work with investment bankers on constructing an asset pool that will adhere to the AOFM’s set parameters and appeal to investors.

Get ratings agencies to determine the rating on that pool – based on the characteristics of the loans.

Through the investment bankers, launch the transaction to the marketplace.

Dealers or joint leads now engage potential investors to determine their investment appetite.

Once done, begin to talk price. Now set a formal pricing date and

put all offers on the table. Calculate investor allocations

based on the agreed pricing. Obtain money from investors, and

return to them the corresponding tranche of residential mortgage backed securities with a fixed interest rate of return.

Use the money to repay the warehouse, or warehouses, from where you have taken the loans.

Dummies guide to pricing and placing an AOFM RMBS transaction:

Recent research on size of broker channel

ReportDate released

Research provider

Research group

Broker market share

Momentum

Australian Mortgage Industry Report (Vol 10)

6 OctFujitsu Consulting

Fujitsu Consulting estimates

38%Up and stabilising

Consumer attitudes to brokers

6 AugRetail Finance Intelligence

2,000 mortgagors

*31% Fluctuating

Genworth Mortgage Trend Report

14 JulRetail Finance Intelligence

2,000 adult Australians

41%Grown significantly

*But the report said the trend over past three years was between 38% and 41%

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LIXI CEO ‘disillusioned’ with Fujitsu findings

would focus on proprietary rather than open standards”.

“Because there is such a small number of big players, there may be more strategic leverage in being proprietary. If that is true then the whole idea of open standards (and LIXI) ceases to be relevant.” North said.

Fenna, though, said Fujitsu placing LIXI where it did on the innovation cycle was contradictory and based on North misinterpreting the lender discussion at the LIXI Forum.

“The Fujitsu Mortgage Innovation Cycle shows that e-submission is on the ‘plateau of productivity’ yet goes on to show LIXI in the ‘trough of disillusionment’. This is contradictory in my view because the two are absolutely linked: e-submission is LIXI-based,” Fenna said.

“The lender discussion on use of LIXI standards was about whether lenders believed new industry standards were relevant for internal business processes. The lenders’ view was they could achieve more immediate success, from a short-term ROI perspective, by using proprietary integration standards exclusively when connecting their own internal systems,” Fenna said.

“The discussion went on to conclude that if, on the other hand, a lender was integrating with an

external party, or if they were taking a more long-term ROI view, the use of co-operative industry standards is in fact the preferred approach.”

Fenna called it “absurd” that the JP Morgan report put LIXI open standards in the category of less successful innovation such as non-conforming loans and conditional fees.

“LIXI standards are relevant everywhere in the lending chain and are used between essentially every participant in mortgage lending,” he said.

“The LIXI Forum covered a significant amount of discussion on innovation. One of the intriguing conclusions is that the LIXI suite of standards is not in and of itself innovative. Using LIXI is now standard practice.

“To be innovative with LIXI is to do something new using LIXI standards. For example e-conveyancing is being built on LIXI standards, which will be right up there in terms of innovation for the industry.”

CEO of LIXI Erik Fenna has hit back hard at research critical of the e-standards industry body contained in the most recent JP Morgan Mortgage Industry Report (Volume 10) as well as follow-up comments made by its co-author, Martin North.

The benchmark report claimed LIXI’s open standards were becoming less relevant as the industry consolidates and proprietary standards are preferred. It also placed LIXI in the “trough of disillusionment” in the Fujitsu Consulting Mortgage Innovation Cycle, alongside ‘non-bank players’, ‘low-doc loans’, and ‘mortgage managers’.

North said, based on what he had heard at the LIXI Conference in Sydney earlier this year, two of the major banks “gave strong indications they

Erik Fenna Martin North

Non-Conforming Loans

Low-Rate Intro

Aggregators

Non-Bank PlayersMortgage Managers

Low-Doc LoansLIXI

Fujitsu Consulting Mortgage Innovation Cycle

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Financial services company Wealth Today has expanded into the broker franchise space with an offering tailored around speedy loan repayment.

Dr Tony Pennells, managing director at Wealth Today, told AB that the franchise model was launched to help modern brokers keep track of the developments that were occurring in the mortgage industry.

He said moves such as national regulation and licensing and commission sustainability increasingly coming under threat meant the broker would shift “into being an industry professional for the client”.

“This means the broker will move from being transaction-based to relationship-based, where they are touching base with the client on a six-monthly basis [and]

Mortgage Choice sniffing in the right direction

‘Get rid of loan as fast as possible’

loan; rather they will assist to get them rid of the loan as fast as possible.

“The idea is that any broker can get you into a loan but the broker of the future assists you to get out of it,” said Pennells.

Franchised brokers will collaborate with a panel of Wealth Today para planners to construct a loan solution which will enable consumers to purchase a home and repay the mortgage in the most effective way that their personal circumstances permit.

Pennells said that this approach was also an effective way to future-proof the industry.

“The broker becomes a true professional for the client. If they have any financial services they come to the broker first and the broker coordinates it,” he said.

Pennells said with its franchise model Wealth Today was not trying to be an Aussie, or set up a shop-based franchise operation.

“Rather this is really a system model without geographical or territorial restrictions,” he explained. “In it the broker’s job is to interview and know the client very well – which is not very different to what they are doing now,” he said.

Wealth Today launches franchise model

Designed to keep brokers in touch with market developments

Move from transaction-based to relationship-based

Effective way to future proof the industry

System based with no geographical boundaries

Key points

Mortgage Choice launching wholesale aggregator Beagle Finance

Loankit brokers to aggregate under the new entity

Gerald Foley (ex-Mortgage Choice) backs the move

Wayne Ormond says Russell is the man for the job

Key points

working with a client, not to get them into a loan, but rather to get them out of it,” he said.

The chief premise of the Wealth Today franchise model is that the broker will do more than set a borrower up in a

Tony Pennells

Gerald Foley, who worked at Mortgage Choice before setting up National Mortgage Brokers, has backed the franchise group’s move into wholesale aggregation, via new subsidiary, Beagle Finance.

Beagle Finance was revealed after Mortgage Choice announced the acquisition of “selective” assets of boutique aggregator Loankit including its IT platforms, loan book and contracts with 50 mortgage brokers.

The Loankit deal will be completed on 1 December and Beagle Finance will officially launch in the first quarter of 2010.

“I see the move of any retail aggregator branching into the wholesale space as a sensible, logical move,” Foley said. “As brokers move through the business life cycle, many will ... wish to trade under their own brand and having that option available to them within the same group is a bonus.

“Equally, as an aggregator, it opens up a broader target market for future brokers that don’t necessarily want someone else’s brand, and maximises the aggregator’s business flows to lenders and internal investment in systems, compliance and support,” he added.

Foley said there was also the opportunity for wholesale aggregators to move down the retail brand path. “Some brokers may over time want to move from their own small, independent brand and become part of a bigger group,” he said.

Another supporter of Mortgage Choice’s move into wholesale aggregation was fellow franchise group Refund Home Loans. Boss Wayne Ormond told AB that CEO Michael Russell was the right person to lead Mortgage Choice into its next phase of development.

Ormond said Russell was the man for the job, given his previous

experience in the wholesale aggregation space as head of Choice Aggregation Services.

“It is an area the new management is familiar with. I’d be concerned if this would have happened under the old management structure because they had no experience in this area,” Ormond said.

While wholesale aggregation is not an area Refund is looking to move into, Ormond said Mortgage Choice was in a strong position to be a “force in aggregation” given the loan volumes they already do.

“The smaller aggregators are struggling with volumes,” he said “Mortgage Choice already has the volumes to compete against the bigger groups.”

Russell said the new venture would help the franchise group attract “quality mortgage broking businesses that are looking for a premium aggregation proposition”.

The new entity will be at “arms length” from the franchise business and will also allow for sub-aggregation with Russell saying “various components of the aggregation proposition would be made available to larger broker groups where they wish to retain their direct lender agreements”.

In terms of how big a part of Mortgage Choice Beagle Finance would become, Russell said it was too early to be talking growth projections

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Industry upstart Refund Home Loans popped the champagne corks in November after recruiting its 300th franchisee.

Founder and executive chairman Wayne Ormond told Australian Broker the franchise group had recruited many brokers from outside the lending sphere, including doctors, accountants, lawyers and police officers.

“It’s far easier to teach a nice guy to be a lender, than a lender to be a nice guy,” he said. “That’s why we take from outside of the industry.”

Ormond said the milestone, achieved in just 67 months of operation, represented a 163% increase on the 114 franchisees the company had signed up two years ago. He expected franchisee numbers to grow further due to “customers understanding the advantages of dealing with a mortgage broker who shares his commissions with his customers”.

Refund has to date paid more than $5m in broker commission refunds to borrowers.

Some brokers have questioned the viability of the business in an

Term deposits present fresh diversification opportunities for brokers, particularly those with cashed-up, high-net-worth clients.

This is the view of Greg Blumenthal, from Brampton Finance, who recently arranged an $8m NAB term deposit.

Blumenthal said that apart from “identifying” some of the client’s trusts for anti-money laundering (AML) requirements, the deal needed “minimal work”.

“Selling term deposits is a good opportunity,” he noted. Customers most likely to require them include those sitting on pre-approvals, “because they already have the cash and it has to go somewhere”, those discharging their mortgages and businesses in the process of being set up.

For Blumenthal, term deposits are particularly appealing given that he operates in the upmarket Sydney suburb of Woollahra, where the average mortgage is around $700,000.

He said one of the attractions of the NAB offering was the “ongoing trail reward” as opposed to other banks, which only offered an upfront fee. He praised NAB

Brokers should look to educate the next generation of borrowers about their services, if the results of a new survey are to be taken at face value.

According to research carried out by Veda Advantage and teen researcher Habbo, while ‘Generation Z’ (those aged between 12 and 18) may not be as financially savvy as ‘Gen Y’ (currently aged between 19 and

Good opportunity for brokers in term deposits

Easy process at NAB praised by Greg Blumenthal

Trail commission a bonusHigh-net-worth clients, clients

with pre-approval may benefit

Key points

Refund not much more than aggregator fee

‘Gen Z’ make good broker candidates30), a desire to pay bills on time and to save money make them good candidates for home ownership.

Of the more than 2,000 teenagers surveyed, over half (54%) said they were using their bank accounts for saving rather than for general spending. Nearly one in five (19%) said they were saving specifically for a house, while a third (32%) said they were saving for a car.

Gen Z also appear to be good at managing their spending, with 67% of teens saying they do not currently owe anyone money, while 64% say they have never missed a mobile phone repayment.

Other findings – such as the fact that a majority (58%) of teenagers don’t know what a credit file is, and more than half (52%) say they have not had a conversation with their parents about managing money – indicate that brokers could play a key role.

Loan Market broker Chris Dobbie said that based on the results of the survey, he believed there was a “great opportunity for mortgage brokers to assist Gen Z”.

“Minimal work” lands broker $8m term deposit

for giving brokers “real cross-sell opportunities” by rewarding them fairly through trail and renewal income on different products.

“The bank branch provides customers with a range of products; there is no reason why a broker can’t do the same,” Blumenthal said. He described the process of arranging the NAB deposit as “very simple”, compared with the large amounts of paperwork other banks required of customers.

He has also arranged a number of smaller term deposits “in the $200,000–300,000 range”, he said, adding that it was important that the rate be competitive and that depositors were not locked in for too long, given interest rates are likely to rise. A term of three to four months is about the average.

“The opportunities here are long-term given Gen Z’s age, and with the correct education platform in place they would be a great market to service,” he said.

Dobbie said educational opportunities should focus on how to create wealth through property purchase with the overriding goal being “financial security for life”.

“From a finance perspective, the starting point would be to provide an understanding of things like credit profile and reporting,” he said. “These basics are important and have perhaps been neglected in the age of easily available consumer credit.”

For a broker to succeed in this field, Dobbie said, they would need to position themselves as a “knowledgable leader, a finance expert, someone who can provide guidance without being condescending”. He added, “this is long-term prospecting. Clever brokers will market to this group and will reap the benefits.”

Kelvin Kirk, head of marketing and communications at Veda, said while Gen Z currently looked like responsible savers, some of their

Refund casts a wider broker net

era of reduced commissions, but Ormond said Refund had performed well in the recent financial turbulence and was “increasingly popular in the tighter economic environment”.

In terms of available franchise territories, just 100 of the 400 franchise districts remain.

Ormond said Queensland was “pretty full” while WA had been an “amazing” area of growth for the business. He earmarked SA as “a sleeping giant”. “SA, in terms of liveability, is as good as WA, but not as remote,” he said. “It’s only an hour by plane to Melbourne.”

Wayne Ormond has defended his business model, built around commission refunds to customers, by saying that in many cases the amount returned was not much more than what an aggregator or franchisor would charge its brokers.

“The refund is not as large as people might think, but it does give us a clear advantage,” he said. “After all, $500 refunded is still $500.”

Ormond believed it was imporant to stand out from the crowd. “Do you want to be the same as everyone else? Our difference is that we share part of the commission with the borrower,” he said.

Chris Dobbie

Who is Gen Z? Currently aged between

12 and 18 Want to pay bills on time Responsible savers Don’t understand how credit

files work Not as financially savvy

as Gen Y Three ways to appeal to

this sector:1. Host property buying

seminars for year 11 and 12 students through their schools.

2. Offer online blogs and forums where Gen Z can interact with industry experts who can provide relevant advice, tips and tools.

3. Use social networking sites such as Facebook to generate interest in property ownership.

Source: Chris Dobbie

attitudes may have been affected by the current financial climate. He said their lack of financial education and knowledge about credit files was a concern.

13www.brokernews.com.au

The Australian economy may not yet be ready for the cancellation of stimulus spending or for the RBA to return rates to normal levels, according to securities firm CommSec. “With economic recovery in its infancy, policymakers must not get complacent and withdraw stimulus too quickly,” it said. CommSec’s Recession Warning Gauge – a measure of manufacturing activity – showed that the Australian economy was still at risk. Current indications suggested that the economy was flat or may even have fallen slightly in the September quarter.

RHG chairman John Kinghorn has indicated he would consider jumping into the home loans market again once securitisation markets rebounded. Kinghorn, the founder of RAMS Home Loans, was forced to sell the business to Westpac two years ago after global markets crumbled. However, the experience hasn’t completely turned him off the mortgage world. Kinghorn told The Australian Financial Review that home loans were still an option. Corporate loans, however, would not be considered. “We wouldn’t know how to finance [them] and don’t have a deposit base like a bank,” he said. “We only finance through capital markets.” RHG made a record profit of $120m last financial year but has not paid a dividend since 2007 in order to create some safety should it not be able to refinance its funding facilities.

ASIC has turned its attention to regulating the ratings agencies, making them take greater responsibility for their actions. From next year ASIC will remove the exemption that protected the big agencies – Standard & Poor’s, Moody’s and Fitch – from any liability for their ratings published in prospectus documents. The federal government will also require agencies to hold AFS licences from next year – forcing them to manage conflicts of interest in line with others in the industry. Standard & Poor’s said it was reviewing ASIC’s policy announcement and the impact it would have on its business. Moody’s said it was in active dialogue with the regulator and expected to receive a licence by January.

Refund Home Loans founder and executive chairman Wayne Ormond picked up a ‘highly commended’ award at Brisbane Business News magazine’s inaugural Young Entrepreneur of the Year awards. “This award pitted us against winners from all sectors of Queensland business and I was proud to accept it on behalf of all our franchisees, whose commitment it reflects,” Ormond said. Since launching in April 2004, Ormond has picked up over 20 awards, including nine in four categories of BRW’s annual surveys of business and the franchise industry.

CommSec issues economic warning

Kinghorn signals a return to mortgages

Ratings agencies to become more accountable

Refund boss wins entrepreneur award

induStRy nEWS in BRiEF

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It has becoming increasingly crucial for brokers to diversify their product offering in order to sustain business growth, according to Steven Heavey, St.George’s general manager for intermediary distribution.

His comment came in the wake of St.George Bank’s recent announcement that it would merge its commercial and retail intermediary businesses.

In doing so St.George became one of the first major banks to form a single intermediary distribution offering.

The integration took place only after “careful consideration” on how St.George could offer all its brokers a more complete and streamlined service, said Heavey.

“Many of our business partners are currently writing both commercial and residential business,” he said. “As a result of this integration they’ll have access to better benefits through one dedicated area within St.George.”

Heavey added that St.George would now be “well placed” to assist brokers with extending their client servicing proposition.

Husband and wife duo Bren and Kylie Rodda have marked their transition from riding jetskis and dolphins to the world of mortgage broking by being named among Loan Market Group’s top performers.

Bren was ranked in the top five nationwide for unconditional loans for the month while Kylie had the most loans submitted for one quarter in the Northern Territory.

Before turning to broking, the Roddas performed in ski and dolphin shows at Sea World, where they first met.

The couple decided to move to Darwin and become mortgage brokers while they were working on a stunt show at a theme park in China. A call from Brett Pilgrim, then state manager of Loan Market in South Australia and NT, revealed an opportunity for brokers in Darwin.

Kylie said that the move to Darwin and mortgage broking had been “fantastic”.

“The weather and the people in Darwin are terrific and they are very open to getting assistance with their home finance as they don’t have the access to lenders that people down south do.”

Diversification crucial for business growth: St.George

St.George merges commercial and retail intermediary businesses

Many brokers already writing both forms of business

Enables St.George to assist brokers to extend service offering

Added benefit for brokers to maintain revenue streams

Move to strengthen service proposition to brokers

Key points

Loan success for dolphin riders

St.George includes commercial brokersin merged offering

“This has the added benefit of maintaining revenue across changing market conditions,” he said.

The merger is aimed at strengthening the bank’s service proposition to brokers in a number of areas. Improvements that should benefit brokers will include the provision of an integrated and aligned “one-stop” service, increased efficiency in processing and an enhanced level of back office support.

Bren’s career as a professional waterskier and jetskier included a stint at Universal Studios working on the ‘Waterworld’ stunt show.

Explaining the decision to shift to a more sedate lifestyle, Bren said: “We both knew we couldn’t work as professional stunt show performers forever and we had to make the jump to a real job sooner rather than later.

“Mortgage broking gives you great job satisfaction by having daily contact with people and helping them to make one of the big decisions in life, purchasing that dream home or investment.”

And they both still get to waterski all year round.

Refund Home Loans and Mortgage Choice have backed reforms of the Franchising Code of Conduct, which include enhancing the investigative powers of the ACCC to conduct random audits of franchisors.

This planned reform (part of the federal government’s response to parliamentary and Senate committee recommendations) is intended to strengthen franchisor compliance with the Code, while relieving franchisees of the fear of retaliation for complaining to the ACCC about franchisor behaviour.

Mortgage Choice CEO Michael Russell said the ACCC audits

Kylie Rodda at Sea World

Support for ACCC franchise “audits”would target “the small minority” of franchisors who do the wrong thing “albeit without the ability of being able to impose any pecuniary penalty”. (Penalties of up to $1.1m will be imposed by a new “expert panel” where a franchisor is deemed to have acted in an unconscionable manner when dealing with franchisees). Russell said he supported enhanced ACCC powers. “While the ACCC presently administers the Code in a very effective manner, the ability to now conduct random audits, particularly in response to complaints from franchisees, appears a common sense extension of its existing powers.”

Similarly, Refund Home Loans boss Wayne Ormond backed random audits. “If you are meeting the requirements of the Code, then you have nothing to fear. The ACCC can come and random audit me as many times they like,” he said.

Ormond said the random audits would catch out those franchisors

that did not “document correctly”. In this regard, he said it was vital that franchisors dealt with experienced franchise lawyers,

particularly “someone specialising in franchising”.

Overall, he said that the planned reforms were all good and would not be an issue for anyone who is compliant with the Code.

Govt response: reforms to the Franchising Code of Conduct ACCC to be given powers to conduct random audits of franchisors Extension of the public warning power available under the Australian

Consumer Law Bill to include breaches of the Code Where a large number of franchisees are harmed by the behaviour

of a franchisor in breach of the Code, the ACCC will be able to apply for an order providing redress to all the franchisees, without requiring every franchisee to be party to the legal proceedings

Will establish an expert panel to inquire into and report on the need to introduce into the Code provisions that prevent specific behaviours that are inappropriate in a franchising arrangement

Will require franchisors to disclose to franchisees the processes that will apply in determining end-of-term arrangements

Franchisors will also be required to inform franchisees at least six months before the end of the franchise agreement of their decision either to renew or not to renew an agreement

Code will include a list of expected behaviours to facilitate dispute resolution

In addition to existing remedies, breaches of the unconscionable conduct provisions of the Trade Practices Act will attract penalties of up to $1.1m for corporations and $220,000 for individuals

Read informative profiles of broker industry leaders at www.brokernews.com.au

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Wendy Higgins, a broker from Glenelg East, South Australia, has battled through the ongoing economic difficulties to emerge as Australia’s most successful mortgage broker according to the Westpac sponsored 2009 MPA Top 100. She wrote more than $123m worth of residential loans for the 2008/09 financial year, and attributes her success to her passion for helping clients reach

One in three mortgage enquiries not meeting criteria

Higgins summits Top 100

One in three mortgage enquiries will not fit the current lending criteria, according to Loan Market Group.

The firm’s chief operating officer Dean Rushton said tighter lending rules which require genuine savings contributions of around 5% towards the property purchase was creating major hurdles for new buyers.

He said other loan applicants who passed all the lending criteria were being rejected because they had few assets.

“The major lenders are in a competitive position where they can pick and choose who they want to lend money to and there is little room to move for applicants who do not fit the box,” said Rushton. “We are finding that 30% of first-time buyers who enquire about housing finance won’t even get past first base.”

Rushton said buyers had been able to use the boosted First Home Owners Grant as a contributor to their deposit but this had become more difficult since the concession was partly reduced on 30 September.

Banks earlier this year reduced their maximum loan to value ratios (LVRs) to as low as 90% in response to the global financial crisis.

But Rushton said family equity options were still available to help first homebuyers and families entering the residential real estate market.

These articles cover the latest property pricing movements, investor news and opportunities, financial trends, as well as product updates.

Craig Pickering, strategic business manager, commented: “Basically it’s a market you cannot ignore; people are going online to catch up with everybody. Word of mouth is becoming an online word of mouth – Facebook is the fastest growing community in the world at the moment.” Also, he said it was a “fantastic way” of letting

brokers know about newsworthy items – as well as it being a good education tool.

“So far we’ve had good feedback from brokers about the articles put on the site, saying they are useful when talking to their own clients,” said Pickering.

their home ownership dreams and property investment wealth creation goals.

“It’s seeing existing clients again and again and seeing how excited they are about what they have achieved because of my initial encouragement and advice about property investment and loan structuring,” Higgins said.

Higgins entered the broker market in 1998, after 24 years

with ANZ, which gave her a solid foundation in banking and the home loan market. In a relatively short time, she has racked up a formidable list of awards. In addition to being awarded the Australian Mortgage Awards Salesperson of the Year (two times), she’s been named to Mortgage Choice’s Hall of Fame. She has also earned the Mortgage Choice National Franchisee of the Year award (three times); and the Franchise Council of Australia Award (four times).

Higgins said the most challenging aspect of the 2008/09 period has been maintaining a positive outlook amid lower commissions, a decrease in lender options, shrinking LVRs and tighter credit policies overall.

“It reminds me of what it was like almost 12 years ago and we survived then; we’re surviving now despite each deal being just that bit harder to get over the line.”

Looking ahead into the 2009/10 year, Higgins said she aims to diversify her income streams through offering insurance and leasing finance. “Next year will be very exciting,” said Higgins. “But it will be business as usual. It’ll be critical to maintain the quality of our submissions and to further cement our relationships with our lender partners and hopefully credit policies may start to relax.”

The full list of Top 100 brokers can be read in MPA 9.12 out now. To view an online version go to: http://www.brokernews.com.au/e-magazines/mpa/To subscribe to MPA, go to http://www.brokernews.com.au/subscribe/magazine/mpa.aspx

Australia’s top 5 brokers

1 Wendy Higgins Mortgage Choice

Glenelg East, SA $123,601,864

2 (Linda)Wei Jing Lin DY Home Loans Preston, Vic $116,460,698

3 Jeremy Fisher 1st Street Rose Bay, NSW $102,523,656

4 Colin LambMortgage Solutions Australia

Doubleview, WA $100,316,862

5 Michael Searle The Home Loan Centre

Canberra, ACT $93,456,612

Source: MPA Top 100

Nationwide Lending gets in brokers ‘faces’Mortgage manager Nationwide Lending has set up a Facebook page to connect with its accredited brokers.

Through its social media presence, its national network of approximately 250 brokers will now be able to read the latest media articles and hook into industry information.

The lender said articles would be updated daily and could be used by brokers to inform their clients of the latest news and developments from the real estate and finance industries.

Facebook stats 350 million users worldwide Most users go onto it for at least 20 minutes per day Fastest growing age demographic in Australia is from 35 to 55 years 96% of Gen Y have joined a social network (Facebook and/or another)

– so if you want to talk to them you have to get online Facebook had 100 million users in 9 months. [Radio took 38 years to reach 50 million users, Television – 13 years,

internet – 4 years] Source: Nationwide Lending

He told Australian Broker that Nationwide Lending’s goal is to accumulate 150 fans (not ‘friends’, as it is a business site) by the end of the year.

In just its first month going online, the non-bank lender had accepted around 60 of them.

http://www.resimac.com.au

18 www.brokernews.com.au

Eddie Chung, partner, private & entrepreneurial clients at BDO Kendalls, can be contacted on (07) 3237 5999 or via e-mail at eddie.chung@bdo.com.auNews

top tEn tipS

…tax REtuRnS on REntal pRopERtiESWith property investors replacing first homebuyers as the next growth market, Eddie Chung, partner at Bdo Kendalls, offers this list of the 10 most common mistakes that investors make when preparing tax returns for rental properties.

tip 1: Repair or improvement? There is a fundamental difference between a repair and an improvement – the former is tax-deductible, but the latter is considered capital and therefore not tax-deductible.

To determine if something is a repair or an improvement, consider: did the work done restore something to its original condition or did it improve it to a condition beyond its original state?

tip 2: Non-deductible costs Just because something is not tax-deductible does not mean it simply fades into the tax black hole. Any work done on a property that is capital in nature may still attract some tax perks.

If you acquire a free-standing functional unit, it may be classified as a depreciating asset on which you may claim a depreciation deduction. If the item acquired is affixed to the building, it may constitute ‘construction expenditure’ on which you may claim a building allowance deduction.

tip 3: Building allowance You are generally allowed to claim an annual building allowance of 2.5% or 4% on the construction expenditure incurred on structural improvements attached to land. However, construction expenditure is not synonymous with the amount one pays to acquire the property.

tip 4: Interest expense Most people assume that any loan drawn down that is related to their rental property is immediately tax-deductible. While this is generally true, the deductibility of interest is contingent on a strict tracing of loan funds to ascertain the purpose for which the funds are drawn.

tip 5: Borrowing costs These are costs associated with the access of loan funds that are used to purchase a property. If the amount incurred is less than $100, it may be claimed as an immediate tax deduction. If the amount exceeds $100, the amount will need to be claimed progressively over the life of the loan or five years, whichever is shorter.

tip 6: Legal fees Legal fees related to the purchase or sale of a property are included in its cost base and are not tax-deductible. However, legal costs incurred to deal with the day-to-day operations of the property, eg, drawing up a lease, are tax-deductible.

tip 7: Body corporate fees Many property investors seem to think that body corporate fees are categorically tax-deductible. While this is generally true for regular body corporate fees, special levies and sinking funds that are used to fund capital improvements on the property are not tax-deductible.

tip 8: Travelling expenses to inspect property If your primary intention to travel to a particular location is to inspect your property but you also intend to use the opportunity to go on a holiday, there will be multiple purposes behind the trip. This means that the associated travelling expenses will need to be reasonably apportioned.

tip 9: Available for rent? An expense is only tax-deductible to the extent that the property is used for an income-producing purpose. Therefore if a property is not available for rent for part of the year, the expenses incurred on the property for that year will need to be apportioned.

tip 10: GSTResidential property leasing does not attract GST, but the leasing of commercial properties does. Generally, if you own commercial properties and the combined projected annual gross rent of these properties will exceed $50,000, you are required to be registered for GST. This will also mean that you are automatically liable for GST on 1/11th of the gross rent, which must be paid to the taxation office.

Brokers struggling to help borrowers who have poor credit ratings should not despair, since most can be removed, according to Graham Doessel, CEO of specialist non-conforming broker Mortgage Now.

Ninety per cent of all applications received had a positive result, Doessel said. Out of these, 80% of clients emerged with clean credit files.

Earlier this year, Mortgage Now launched mycra.com.au, which specialises in repairing credit files. “The only thing we cannot remove is a bankruptcy default,” Doessel said. He reported that the most common defaults were those relating to telco and electricity bills.

mycra.com.au engages a specialist firm that negotiates with creditors to get judgments and defaults removed. “It’s not an exact science … it comes down to how you communicate with creditors,” Doessel said.

A recommendation from Mark Bouris that Australia establish an industry benchmark to track banks’ wholesale funding costs has been backed by both NAB and the CBA.

The Australian reported that NAB CEO Cameron Clyne saw “great merit” in the establishment of an independent barometer.

The regular publication of a benchmark cost-of-funds rate would better inform the debate surrounding the movements in variable mortgage rates and the official cash rate, according to comments the paper attributed to Clyne.

Similarly at a recent CBA-hosted media lunch, where an explanation was given of how

According to Graham Doessel, momentum is building in the non-conforming market.

“We handle anything the banks won’t touch – defaults, unusual income sources, specialised securities … or bad credit ratings,” he said.

Doessel described the market as “interesting” and an “exciting game to be in”.

“I’ve just put on more brokers because I can’t handle the enquiries. We’ve doubled the number of products we have available for non-conforming borrowers,” he said.

“The tide has turned.”

Non-conforming market rebounding

CBA, NAB back ‘bankwatch’

escalating wholesale funding costs would impact on future interest rates, the idea of a benchmark got the green light.

“We would have no problem with ‘bank watch’,” said James Sheffield, general manager for the CBA’s mortgage wealth division.

Bouris proposed ‘bank watch’ as a means for consumers to predict interest rate movements outside of official monetary policy.

“We should have a benchmark rate for the cost of wholesale funds. That way, if the benchmark rate is 7%, for example, and my variable rate is 6.5%, then I should start thinking about fixing, because I could soon be paying 9% if you allow a 2% margin over costs,” he said.

Majority of credit defaults can be cleaned up

Lenders (and creditors in general) must follow a strict procedure to include defaults on credit files – otherwise they are legally obliged to remove them. But even if a lender has followed the letter of the law, Doessel said it was still possible to persuade them to remove blemishes.

Writing in this issue of Australian Broker, John Dickinson, from WE Fix Credit, said a large number of defaults and judgments were listed incorrectly by creditors.

Dickinson described a “wild west” attitude among creditors to listing defaults “with little regard for due process”.

“Unfortunately in these cases it’s the consumer that really suffers,” he said.

To read John Dickinson’s thoughts on Australia’s credit reporting system and what brokers can do to help clients with credit file issues, turn to page 26.

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News analysis20 www.brokernews.com.au

No withdrawal symptomsmarket, he, like Oliver, says that the recovery of normal market forces will mean the market can now sustain itself without artificial stimulus.

Allan Savins, chief operating officer at Resimac, also believes that the impact of the proposed restriction will be limited “as homes up to $750,000 are traditionally the first homebuyers’ market”.

He says that while the FHOG was influential in creating a property spike for properties valued up to $500,000, it is still “too early to tell if this is a bubble”.

Meanwhile, the HIA’s chief economist Harley Dale says renewed growth in house prices over 2009 negated predictions that Australian home values would tumble.

The latest ABS figures, which show that the index of established house prices increased for a second consecutive quarter in September 2009, “fly in the face of doomsayer predictions,” says Dale.

“Increasing signs of life in the real estate market this year has helped boost consumer confidence and spending and has been a component of Australia’s economic out-performance.”

Like AMP’s Oliver, Dale adds that new home construction must pick up in order to avoid unnecessary upward pressure on prices.

“A recovery in new residential construction is underway, but there is a very real risk that costly delays in planning approvals and land shortages will combine to blunt the magnitude of that recovery,” says Dale.

Any downward pressure on house prices as a result of the government’s plan to restrict the FHOG to homes valued at less than $750,000 will be offset by improved confidence in the upper end of the market,

according to Shane Oliver, chief economist and head of investment strategy at AMP Capital Investors.

The FHOG restriction is part of a broader government plan to rein in fiscal stimulus, and will come into effect on 1 January 2010.

While some pundits think the move is premature, Oliver disagrees, citing as evidence an increase of around 8% in house prices over the last six months.

And while artificial support for house prices is no longer necessary, support for the construction of new homes is – given the supply/demand imbalance in that sector.

“So there is a case that the First Home Owner Grant be refocused solely on people buying or building new dwellings,” Oliver says.

Rather than the FHOG having created a property bubble, he notes, it helped prevent a sharp fall in house prices and has contributed to a recovery in house prices this year.

“House prices were already very high relative to income levels before the boost and there were elements of a property bubble evident around 2003 to early 2004,” Oliver says. “But the elevated level of Australian house prices owes more to restrictions on the supply of new housing than an increase in property demand.”

Similarly, CEO at Choice Aggregation Services Brendan O’Donnell believes the move to restrict the FHOG won’t impact the market’s current performance since it is only “a small percentage” of first homebuyers purchasing properties in this space.

And while he acknowledges the excellent cushion the stimulus plan provided in propping up a deflated

The government might be reining in its boosted First Home Owner Grant but, according to a group of industry experts, its beneficial impact on Australian house prices won’t easily be undone. Tim Neary reports

There is a case

that the FHOG be refocussed solely on people buying or building new dwellings

According to HIA figures… The weighted average capital city established house

price index increased 4.2% in the September 2009 quarter and 6.2% from the same period last year.

The established house price index increased by 4.3% in Sydney, 4.7% in Melbourne, 4.4% in Brisbane, 1.7% in Adelaide, 4.5% in Perth, 1.8% in Hobart, 3.4% in Darwin and 4.3% in Canberra.

The weighted average index for project homes across Australia’s seven state/territory capitals plus Canberra increased by 1.3% in the September 2009 quarter to be up by 2.5% compared to the same period last year.

21www.brokernews.com.au

News

Smartline adds another gong to AMA win

– in consultation with our franchisees – which has allowed us to highly systemise the business,” he said. “This provides considerable time savings for the franchisees and makes the business much more efficient, which allows them to focus on building relationships and servicing their clients.”

Smartline currently has more than 200 franchise owners throughout Australia, has assisted over 100,000 clients and has a loan portfolio exceeding $10bn.

Acret hoped the success of the group would help boost recruitment over the next couple years. He said Smartline was looking to grow its franchise numbers in 2010, with the goal of having a total of 300 high-quality franchisees within the next few years.

More than 170 franchise systems were given the opportunity to take part in the Australia-wide survey, conducted by research company 10 THOUSAND FEET.

Each franchisee was asked more than 35 questions regarding their business; a wide range of industries were included in the survey. Mrs Fields cookies, Car Care mobile auto detailing, Mortgage Choice and Signwave graphics and signage rounded out the top five.

Smartline, which took out the franchise operator of the year award at the 2009 Australian Mortgage Awards, went home with another trophy this month when it was named the number-one franchise in the country for the second time running by website topfranchise.com.au.

The group ranked first overall in the topfranchise.com.au survey and also came first in three individual categories: support, rewards and referrals. It was ranked fourth for passion and third in the lifestyle category by its franchisees.

“Smartline outperformed the industry average in the area of mentoring by 24%,” said Ian Krawitz, head of intelligence at topfranchise.com.au. “Exploring a bit deeper with Smartline’s management we found that a key contributor to their success in mentoring was that their field support staff undertook dedicated training programs to specifically enhance their coaching skills.”

Smartline managing director Chris Acret said his model gave franchisees the best of all worlds.

“We have invested huge sums of money over the years in putting infrastructure in place Chris Acret

News analysis22 www.brokernews.com.au

Two plus two does not equal four

Looking beyond bottom line earnings, which, though declining were still healthy, the most obvious finding to come out of the annual results of the major banks was the widening gap emerging between the ‘Big

Two’ mortgage lenders, CBA and Westpac, and the ‘other two’ (for want of a better word), ANZ and NAB.

Helped by their acquisitions of BankWest and St.George, CBA and Westpac managed to grow their already enormous mortgage books by an exceptional 20.7% and 17% respectively. ANZ also managed to grow faster than system growth of 7%, increasing its loan book by 10%. NAB grew just 4%.

As things currently stand, Westpac and CBA have loan books that are $100bn bigger than the NAB book

and $116bn bigger than ANZ. Combined, these four brands – CBA and Westpac with smaller, but significant contributions from BankWest and St.George – accounted for one in every two mortgages provided to homebuyers in the last year.

Growing broker channelsThe good news for brokers is that originations levels at these four brands as well as at ANZ (NAB continues to struggle to gain traction among brokers) have withstood the GFC, a reduction in competition, tighter lending criteria and a period of abysmal service earlier in the year.

In its investor presentation, Westpac highlighted the growth in its broker channel with originations increasing over the 12 months from 38% of all mortgages to the current level of 45%, significantly higher than any of the other Big Four.

Its subsidiary, St.George, witnessed a small drop in its broker channel (down 1%), but with 48% of originations via brokers, the third party channel remains vital to St.George’s growth outside its core market of NSW and ACT.

ANZ maintained a strong third party distribution channel over the last 12 months with more than a third of its mortgages (38%) sold via brokers. However, this was down on flows of 46% recorded a year ago. The bank’s decision not to impose minimum volume quotas on brokers (applauded at the recent Loan Market Group conference) may help strengthen its presence in the third party market.

Once again it was NAB that struggled to gain traction in the broker channel, despite the bank looking to forge closer ties with brokers via its regular and well-attended road shows. Its investment in the Challenger aggregation businesses, which signalled an end to its ‘yes we’re in, no we’re out’ approach to brokers, may help it grow its poor presence in the channel, which currently stands at just 11% of total distribution. This is down from 16% of its mortgages distributed via brokers a year ago.

As for the CBA, despite implementing its unpopular minimum volume requirements, it reported impressive growth in its broker channel originations when annual results were released in August. A slide prepared as part of CEO Ralph Norris’ presentation to investors revealed that over the last three years, the broker channel had grown by 26.5%, 31.5% and 34.3% respectively, faster than both its premium banking and branch channels. According to recent Fujitsu Consulting estimates, brokers now account for around 35% of CBA’s originations.

Acknowledgment of brokersBesides including the contribution of brokers in actual numbers and percentages, the major banks made numerous mentions of their plays in the third party space in statements made in media releases and as part of investor and analyst presentations.

Cameron Clyne, CEO of NAB, acknowledged the importance of brokers in its future growth by saying: “The addition of the Challenger mortgage management business, once complete, represents an important

ANZ CBA* NAB Westpac**

Financial year-end 30 Sep 30 Jun 30 Sep 30 Sep

Size of Australian mortgage book $141bn $257bn $157bn $257bn

Annual growth of mortgage book 10% 20.30% 4% 17%

Share of mortgage market 14% 25.10% 14.30% 26%

% of loans via brokers 38%+ 35%++ 11%+ 45%

Third party interests None • 33% of Aussie• $2.25bn of Wizard originated home loans

100% ownership of Choice, FAST and PLAN

Ownership of RAMS Home Loans

Net cash profit after tax $3.38bn (+12%)

$4.42bn (-7%)

$3.8bn (-1.9%)

$4.63bn (-8%)

St.George (Westpac)

BankWest (CBA)

Market share 8.70% 3.20%

Mortgage book $83bn $35bn

Growth of mortgage book 12% 4.00%

Broker originations 50% not published

Table 1: Key indicators – comparing the Big Four

Table 2: Banking subsidiaries’ performance

Based on annual results, media releases and investor presentations of ANZ, CBA, Westpac and NAB*includes BankWest **includes St.George +ANZ, NAB market shares based on Australian Mortgage Industry report (Vol 10)++Estimated by Fujitsu Consulting in its Australian Mortgage Industry report (Vol 10)

Based on annual results, media releases and investor presentations of CBA, Westpac

The release of annual results by NAB, ANZ and Westpac within a week of each other (to go with CBA results filed in August) highlighted the dominance of the ‘Big Two’ and also the strong position brokers continue to hold as a key origination channel. Larry Schlesinger reports on the figures

23www.brokernews.com.au

component of our retail banking growth strategy.” This point – that the Challenger acquisition “enhances NAB’s retail banking growth strategy” – was made again later in the same media release.

The Westpac ‘investor discussion pack’ reported that its non-bank and franchise subsidiary RAMS, which the bank has positioned as an independent brand in the market, reached profitability on a month-by-month basis in June 2009, just 15 months after being acquired.

Westpac reported that RAMS grew ahead of expectations – contributing 21% of Westpac’s retail banking business mortgage growth – segmented itself strongly in the market by appealing to first homebuyers and achieved record volumes through franchisees. Brokers were the key channel driving the uptake of RAMS Home Loans, generating more sales than its franchise network.

Furthermore, in her briefing to analysts, CEO Gail Kelly highlighted the “excellent performance of RAMS” as part of the Westpac retail banking division.

CBA commented that strong balance growth was partly a result of its “strong presence in the broker market”. In its investor briefing, the bank mentioned its strategic stake in Aussie Home Loans, which it called a “leading player in the Australian mortgage broker market”, numerous times.

All these remarks, together with the ‘hard data’, point to the majors increasingly engaging with brokers through 2010 and beyond. And with second- tier lenders and non-banks set to struggle to win back market share, stronger ties with the Big Four – competition concerns aside – will be viewed by many in a positive light.

Chief executives of the Big Four share their thoughts on the outlook for 2010

Ralph Norris, CBA: “Overall credit growth in Australia is expected to slow through 2010 and economic conditions are likely to remain

challenging for the group and many of its customers. Accordingly, the group will retain its conservative business settings, maintaining appropriate levels of capital, liquidity and provisioning. The group will also continue with its cautious approach to the management of credit and market risk.”

Gail Kelly, Westpac: “We are certainly going into a lower growth environment… The de-leveraging of stimulus packages is impacting on the

growth environment. Deposit growth will be a greater determinant of how much lending is done in the system. Average funding costs continue to rise as we replace cheaper funding with more expensive funding… We will be paying more for savings … higher quality capital will be required. There has been some gradual recovery, and there will be aftershocks…

It’s an improving environment, but there is still fragility and still cause for caution.”

Cameron Clyne, NAB: “We are seeing some more positive signs emerge, but there remains a degree of uncertainty on the outlook.

Overall, Australia has fared remarkably well, but we do remain cautious. Growth has been brought forward by stimulus and the economy is still below productive capacity. Unemployment will continue to rise albeit at a lower rate than we expected at the half year.”

Mike Smith, ANZ: “The economic slow-down is continuing as much as we expected. We have seen bad debts emerge from highly

leveraged entities and more recently from the commercial sector and higher risk personal customers. We expect this will continue into 2010. However, given the resilience of the Australian economy, the stabilisations we are starting to see in the New Zealand economy and the strength of the Asian economies, especially China, we believe credit quality has stabilised.”

Future prospects: CEO thoughts

24 www.brokernews.com.au

Feature

One year onWhat a difference 12 months can make… or maybe not. Australian Broker reflects on the stories that made headlines in the magazine one year ago

Headline: “Quasi-broking for Macquarie?” (Page 2)What we reported: Macquarie confirmed it had, for a number of years, offered a broking service to its high-net-worth clients after a reader contacted AB to report being sent an e-mail by the bank offering them home loan solutions from 12 different lenders. A spokesperson confirmed the service was only offered to customers who came to the bank directly and that clients who came to the bank via broker were always referred back to their broker.

What has happened since?The fact that Macquarie continues to offer its ‘quasi-broking’ service

is now a side story to its long awaited push into the aggregation space via a new cooperative venture. Since February, when the story first broke that Macquarie was planning a play in the broker space, details have emerged piecemeal. Three aggregators – The Brokerage, The Mortgage Professionals and National Brokers Group – are part of the mix and, according to one insider, it is due to launch any day now.

Headline:“CBA defends BankWest takeover” (Page 6)What we reported: Following CBA announcing its $2.1bn acquisition of BankWest, consumer watchdog CHOICE launched a series of newspaper ads calling for a bank outside the Big Four to purchase the WA-based lender.

The ad read: “WANTED: $2.6bn to give BankWest its smile back…” CHOICE argued it wanted to protect the regional banking sector and competition in general. CBA responded by noting that its purchase would return ownership of BankWest to Australia.

What has happened since?The CHOICE campaign fell on deaf ears. The purchase received the tick of approval from regulators and just before Christmas 2008 BankWest officially became a CBA subsidiary. Annual results filed in August this year revealed that BankWest contributed 3.2% to CBA’s 25.1% share of residential lending. BankWest continued to position itself as a standalone brand. This approach appeared to bear fruit with 41,000 new customers joining the bank in the six months after the merger. Industry-wide consolidation of the sector has continued.

Headline:“Experts shrug off talk of US-style housing slump”What we reported: On the back of house prices falling 1.8% in

the September 2008 quarter (the biggest quarterly fall since 1978) ANZ economist Alex Joiner put to bed any concerns of a US-style housing collapse. Joiner said “divergent forces” would cancel out any significant movements up or down. Such forces included increases to the First Home Owner Grant and decisive cutting of interest rates. He forecast official interest rates at 4.5% by mid-2009, Australia avoiding a recession and no dramatic rise in unemployment.

What has happened since?Joiner was on the money. Australia never even came close to a housing market collapse, with the boosted FHOG and big cuts in rates helping to maintain momentum. One year on, ABS figures for the September 2009 quarter revealed a 4.2% jump in prices. The recession was narrowly avoided and unemployment forecasts have been revised downwards. As for rates, they sank significantly faster and further than Joiner expected, bottoming out at 3% in April this year. Two official rate rises in October and November signalled that the economy was well and truly on the move again.

Issue: Australian Broker issue 5.23

25www.brokernews.com.au

Mara Olekalns is Professor of Management (Negotiations) at Melbourne Business School and a board member and past president of the International Association for Conflict Management

Research from Melbourne Business School finds that negotiators need to

convey competence, not ‘niceness’. Conveying competence will encourage the other party to keep promises and create a good deal for both sides. Simply conveying niceness, however, can lead to the perception that the negotiator is not giving accurate information.

My research has found that the most likely trigger for deception is an environment where one person feels they will be exploited.

Two modelsThere are two models of ethical decision making – fair trade and opportunistic betrayal.

Using the fair trade decision making model, negotiators assess the likelihood of exploitation to be low, so their need to act self-protectively by deceiving the other party is reduced. The costs of deception (relational damage) outweigh the benefits.

Using the opportunistic betrayal model, individuals base their decision to betray trust on the likelihood that their betrayal will be detected and punished. When they conclude the likelihood of detection is low they increase their use of deception to gain personal advantage. The benefits of deception outweigh the cost.

When negotiators have evidence that the other party will keep commitments or when they themselves feel optimistic, deception decreases. Conversely when negotiators express negative emotions, deception increases.

Dependence levelsThese effects are amplified by the level of dependence each negotiator has on the other: When negotiators have the same level of

power they are mutually dependent. When they have different levels of power, they are non-mutually dependent.

A negotiator with high trust and positive emotions combined with mutual dependence in the negotiation leads to a reduction in deception.

A negotiator with low trust and negative emotions combined with a non-mutual relationship in the negotiation leads to an increase in deception.

Negotiators who focus on relationship building by identifying shared values and goals may be encouraging opportunistic betrayal.

Aim to show competence rather than niceness

Avoid showing anger or anxiety

Be aware of the other party’s emotional state

Being overly positive weakens your position

Negative emotions can signal a lack of trust

Tips for negotiating

Too nice to negotiate Mara Olekalns warns that being nice in a negotiation encourages mistrust, which can lead to deception and betrayal by the other party

Barry Urquhart is managing director of Marketing Focus. He is an internationally recognised conference keynote speaker, facilitator of strategic planning workshops and marketing business coach. urquhart@marketingfocus.net.au

There is a difference. Putting off a decision is different in nature and in consequence to making a decision that

concludes with a ‘no’.When you retreat or withdraw from an

active, if not proactive role, a negative mindset is inclined to evolve. It is then that the time or circumstances never seem to be ‘right’, and ‘better’ is only a passing phase or another ‘false dawn’. Yeah, right!

Decisions that are made on the best available information are just that – they are limited by the availability of information at a given point in time.

Use time wiselyInformation in the current marketplace is not perfect or complete. Accept the fact that it never has been and never will be, regardless of the character of the economy.

The buoyancy and exuberance of the boom period have lapsed. Less pressure is being applied to the available time of business owners, managers and staff members. Even though retrenchments and staff dismissals have qualified, to some degree, the amount of uncommitted time available in a typical working week, everyone has a little more time to spare than they did before the slump.

However, there is little evidence that this time is being used constructively. Where is the business development, marketing, team building, training and planning?

References to 10% of time being given to marketing and 5% to planning generally collapse when executives and staff members are asked to nominate which specific hours and days are scheduled for such activities. The usual rider to the statement is: “When time permits.”

Scenario planning Well, time is permitting right now – more than ever.

Your business should be seizing this opportunity to undertake interactive sessions,

where participants visualise, analyse and formulate possible and probable marketplace scenarios that could develop over the next three years.

Strategic and tactical options can then be recognised and isolated. One significant by-product is the acceptance by most that options and choices do exist. The “siege mentality”, which has gripped and impedes many entities, can be addressed, readdressed and overcome. Personal and group confidence will be lifted.

Pre-emptive analysis can and, arguably, should be given to the identification of marketplace triggers that will necessitate appropriate decision making and action implementation. This will save time, provide scope for marketplace leadership and ensure an early development of increased momentum.

Beware inertiaDeluding yourself in the mistaken belief that it isn’t necessary to make a decision at this time can have its own opiate characteristics. An absence of decision making reduces stress, frees up time and avoids the prospect of errors, omissions and failure.

However, the loss of momentum in the intermediate to longer term has widespread implications for competitive advantage, supply chain benefits, customer loyalty and stability.

Plan to planDetailed and documented planning is not an innate feature of many corporate cultures or business activities. Critics of scenario planning dismiss the concept as speculative, subjective and inaccurate.

There is some accuracy in the first two of those three adjectives. However, anecdotal evidence and detailed analysis conducted over an extended period of time reveals that documented plans that evolved from scenario planning workshops were inevitably strikingly accurate.

That should come as no surprise. Business professionals who know in detail their marketplace, their products, their services, competitors, customers and global trends in communications, supply chain management and marketing, can and do readily visualise the unfolding scenario.

Regrettably, most businesses do not dedicate sufficient time, money and resources to planning.

Business leaders who plan and make astute decisions regularly become very good at both. Success follows.

In times of struggle, many businesses put off decision-making to “better times”. Barry Urquhart argues that while this may feel like the right thing to do, it can have grave long-term consequences

He who hesitates is lost

26 www.brokernews.com.au

Online

Is there life after default?Despite often being wrongly listed, credit file judgments can have severe consequences for those applying for a loan. The problem comes down to Australia’s credit reporting model and a ‘wild west’ approach to defaults by some lenders, writes John Dickinson

for up to five years, even more if the listing is of a more serious nature.

Lack of positive reportingOne of the fundamental issues is the style of our credit reporting system. While the US and Europe have adopted a positive reporting system, meaning positive events such as an account being paid without incident are recorded, our system only tends to record negative events. One might suggest that a lender reviewing a credit file that showed a number of positive listings with one anomaly may have reached a different viewpoint from a lender only noting the anomaly.

Credit providers also have an obligation to make sure the correct process is followed and listings are recorded in appropriate timeframes. Some credit providers are very quick to list a default but very slow in updating the listing as paid if the account is rectified.

Little regard for consequencesWhile some credit providers do follow the required procedures when listing a default or judgment, others seem to think it’s the ‘wild west’ and list defaults and so on with little regard for due process. Unfortunately, in these cases it’s the consumer that really suffers.

The selling of debt to collection companies can also be a problem with regard to correct credit reporting protocol. We have seen many cases where a default has been listed many months and sometimes even years after the event. There has also been more than one occasion where the collection company had the wrong person and, after much harassment, went ahead and listed a default regardless. Clearly, this sort of behaviour is not acceptable; however, it is the consumer that loses again as their ability to raise funds could be impaired for years as a result of such actions.

Fixing the problemIf we agree that the current system is less than perfect, the next question is: What can be done about it? For the most part, many mortgage professionals and the general public have little idea where to turn when they feel they have a genuine case.

Some of you may be surprised to learn that a good percentage of genuinely contestable listings can be challenged and permanently deleted from the client’s credit file – not just updated to paid or settled, but permanently deleted. This means that the client would be free to apply for credit as if the listing never existed.

I’m not talking about turning someone who is not creditworthy into a borrower. On the contrary, I am referring to genuine people that have been inappropriately treated not having to suffer for years when it comes to qualifying for finance.

Some handy tips for borrowers when it comes to avoiding credit issues are: Make sure the creditor is immediately informed of a

change of address or contact details If the customer notices a direct debit has stopped but

the debt still exists, don’t wait to be contacted by the creditor – call first

If there is an issue with making a payment, call the creditor immediately to discuss

If the debt cannot be paid right away, talk to the creditor about a payment plan. If a payment plan is agreed on, make sure it is honoured

Make sure everything is in writing

Much like mortgage broking, credit repair is not regulated and, as in the broking industry, a small group of less than ethical practitioners has drawn attention to the industry as a whole. As the brokers are soon to face strict regulations, I believe the credit repair industry should follow suit. The professionals in this area offer a valuable service to the community and have the ability to change people’s lives for the better.

Iam sure you all know the impact that a negative listing on a credit report can have on a borrower when applying for finance. With the tightening of credit policies, even the smallest credit issue can be the difference

between an approval and decline. What you may be surprised to learn is that a large

number of defaults and judgments are listed incorrectly. By this I mean the required steps were not followed or the details of the default are not correct. The difficulty for the mortgage professional and client alike is, in the current market, most lenders’ automated application systems do not account for this fact and are most likely going to decline the application regardless.

Three options for brokersIf an application is declined due to credit issues, the mortgage professional is faced with three options: explain to the client that the application was declined and walk away; try to introduce a non-bank lender where in most cases the interest rates and fees will be significantly higher; or try to escalate the matter to the lender’s credit area for manual assessment.

I can sense a number of you shivering when you read this as anyone who has tried these options understands the pain and frustration they can result in. As a rule, most banks would automatically give such a matter the highest possible risk rating which means the usual supporting paperwork is replaced with the need to supply every conceivable document, making this inevitably a very time-consuming and often frustrating event for all concerned, especially when, after all this additional work, the answer from the lender is still no. The truth is, only very few applications carrying high risk ratings ever get funded.

It’s frightening to think that a mistake that leads to a default can affect someone’s ability to qualify for a loan

The truth is, only

very few applications carrying high risk ratings ever get funded

John DickinsonWE Fix Credit

27www.brokernews.com.au

28 www.brokernews.com.au

Feature

What was the last book you read?Who Wants to Be a Billionaire: The James Packer Story.

If you did not live in Australia, where would you like to live?I lived in London for six years and still have close friends and family over there. However, there is no place like Australia.

If you could sit down to lunch with anyone you like, who would it be?Barack Obama. I like to understand what drives and motivates high achievers.

What was the first job you ever had?George’s Chicken Shop, Springwood. I worked there for two years while at school. I learnt how to put five chickens on a spit in less than 10 seconds. I also learnt that small business owners work very hard and deserve their success.

What do you do to unwind?Exercise and watching anything on Fox Sports

What’s the most extravagant gift you ever bought yourself?I still need to do that...

What CD is currently playing in your car stereo?They are all my girlfriend’s.

If you could give anyone starting out in business one piece of advice, what would it be?Write a solid business plan and always manage your downside risk.

If I was not working in the mortgage industry, I would like to be…?I always liked the idea of sports management.

Where was the last place you went on holiday?Koh Samui, Thailand.

What is the one thing most people would not know about you?I play the piano.

oFF thE CuFF

all a tWittER

andrew RussellFirstfolio’s general manager for third-party and product distribution.

Recent tweets from the desk of peach home loans…

5:31 pM nov 16thING announce long awaited offset account - but despite their claims the process isn’t as simple as their Simplifier and the rate is higher!

5:01 pM nov 3rdWe have access to Low Doc loans up to 85% LVR with no BAS statement required plus a No Doc at 75% LVR.

4:40 pM nov 3rdThe RBA increased the cash rate .25 and within hours all four majors announce their increases to match it - four singing with one voice.

3:39 pM oct 18thAustralians living & working overseas who want Aussie based finance visit our sister site Expat Home Loans

3:36 pM oct 18thCommonwealth Bank have once again hiked their fixed rates with their 5 year loan now breaking the 8% barrier at 8.04%

7:47 pM oct 1stBig Four rely on apathy Choice reports that customers couldn’t be bothered changing despite rating them last in customer service, crap pays! ING have announced a reduction in 4 and 5 year fixed rates

8:14 pM Sep 30thWestpac with RAMS and St George have all tightened low doc policy requiring 12 months BAS statements no exceptions, aint competition grand

Handle: http://twitter.com/peachhomeloansIf you tweet regularly, send us a link to your Twitter page and we’ll include some of your posts in our next issue. Send details to Brokernews@keymedia.com.au

“I see little benefit to consumers in a broker or mortgage manager selling a major bank-funded product. The market today has Aussie selling

cont. from cover>> CBA money, RAMS selling Westpac and now Advantedge selling NAB. Where is the true competition in any of this?” he asked.

Instead, Foley felt that what Australian borrowers needed most was government support of independent second-tier banks, building societies and non-banks until such time as the capital markets were restored and new money flowed into residential mortgages.

“I understand brokers placing the vast majority of their clients with the four majors today, but I also worry about where it will all end,” he said. “With the Big Four now controlling around 90% of new business there must be steps taken to help the next level compete for the longer-term good.”

Following announcements about product enhancements, Advantedge’s CEO Drew Hall said mortgage managers played an important role in providing consumers with personalised service and market-leading products and that enhancing their ability to compete on a level footing against the major banks was critical in ensuring Australian borrowers have greater choice.

Hall was confident the move would boost competition in the industry.

Iain Forbes

Andrew Clouston

29www.brokernews.com.au

Insider

A competitive streak

‘lenders’ in the singular sense, or more specifically, the Victorian Treasurer who goes by the name of John Lenders!

And the nature of the e-mail itself: A demand from Wells that Lenders clear up the apparent confusion over whether the FHOG is to be capped at $600,000 or $750,000.

Insider suggests Lenders lend a helping hand…

Remember where you heard it first

Well, well, they are a bit touchy at Mortgage Business when it comes

to getting scooped. Take for instance, the story

that aired on Broker news about Mark Bouris speaking at the Connective conference. (‘The Apprentice’ heads to Connective conference – www.brokernews.com.au/site-search/the-apprentice-heads-to-connective-conference/37654?keyword=connective)

Insider understands that the banking journal sent a rather upset e-mail to Connective head office titled “Over to you” which read along the lines of “… great story about Connective, just a pity I read about it on Broker news”.

While Mortgage Business huffed and puffed, a little investigation revealed that the lending pamphlet had in fact received the press release, but the problem was this: their only journalist happened to be on leave that day and no one was checking e-mails.

Not to worry. We believe they’ve solved the problem – they’re now getting sales people to file stories for them when their journalist is out of the office.

Got any juicy gossip, or a funny story that you’d like to share with Insider, drop us a line at insider@ausbroker.com

Don’t be shocked if one day you happen to be walking down a street somewhere in Australia and,

as you pass a Westpac branch, a grey-haired man, wearing nothing more than his socks and running shoes, comes sprinting past you.

If so, it’s very likely to be Malcolm Maiden, the respected BusinessDay columnist, who in his 5 November column (filed after Westpac released its annual results), promised to “streak down a street of Westpac’s choice if it ever reports that St.George has won market share at its expense and contrary to its wishes”.

Rather than delve into the question of banking competition, Insider instead thought it far

more prudent to scour the pages of recent Westpac media releases, listen attentively to investor relations briefings and conduct numerous Google searches in the hope of finding a comment by Gail Kelly that qualified for the ‘Maiden dash’.

Unfortunately, although we found statements about “multi-brand strategy” and “10% growth in lending at St.George”, we proved unsuccessful in our quest to track down the necessary remarks (so maybe Maiden is right after all).

However, we challenge our readers to get in touch with Maiden should they stumble across something we may have missed. Or perhaps Kelly herself could be persuaded to utter a few choice words, all in the name of being a good sport of course!

Call me ‘LJ’

John McGrath, Ray White, Raine & Horne. Many in the industry will attest to the

power of the ‘personal brand’.And perhaps none more so

than Janusz Hooker, who we’ve been told is affectionately known as ‘LJ’ in the office.

For those who don’t know (Insider included), his full name is in fact ‘Leslie Janusz Hooker’ – his first initial belonging to that of his grandfather, Sir Leslie Hooker, who founded the business in 1928.

Given those initials and his nickname, it certainly seems like Janusz has stepped into a role he was born to play.

A grammatically correct rant

Apress release sent out by Victoria’s Shadow Treasurer Kim Wells

with the title “Lenders creates confusion over first homeowners’ grant cap” had Insider immediately drawing out the red pen.

Based on the assumption that the press release meant ‘lenders’ (those that lend money) and hence should have read “Lenders

create…” and not “creates…” Insider was all fired up to issue a lesson in good grammar to those greasing the wheels of Wells’ PR machine.

Luckily we actually read the rant (Insider is a bit of a leftie) and discovered that it referred to

30

Caught on camerawww.brokernews.com.au

Brokers from as far afield as Tasmania and New Zealand took part in the 2009 Loan Market International Broker Retreat titled ‘My business beyond 2010’ held in Melbourne from 21–23 October. More than 220 brokers attended

PHOTO 1: Bruce Patten (NZ), Mark Winter (QLD), John Burnett (NZ)

PHOTO 2: Jamil Allouche (Vic), Dean Castleton (VIC), Sam White (NSW)

PHOTO 3: George Kargiotis (SA) Kylie Rodda (NT), Bren Rodda (NT), Clint Bravo (VIC)

PHOTO 4: Kelly Tatlow, Nyssa Kong (Both QLD)

PHOTO 5: Kristine Seymour, Peter Gordon, Liz Henderson, Paula Hardin (All NSW)

PHOTO 6: Liz Henderson, Chris Wilkins, Lepar Kamar (All NSW)

PHOTO 7: Robert Gruzlewski, Adrian Rivish, Robert Kent (All SA)

PHOTO 8: Ben Higgins (NT), Mandy Mauloni (QLD)

PHOTO 9: George Crooks (QLD), Chris Dobbie (QLD), Tim Brookhouse (ANZ)

PHOTO 10: Matt White, Louise Nell (Both NSW)

PHOTO 11: Shannon Franzway, Christine Gray (Both QLD)

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