Tag: Australian Broker

Home loan fintech raises $25m

A fintech start-up is celebrating a $25million raise as it continues on its pathway to becoming Australia’s “most innovative home loan provider”; via AustralianBroker.

Athena Home Loans, which is still in its pilot phase, has closed its most recent Series B raise led by Square Peg Capital.

Industry super fund Hostplus and venture firm AirTree also joined the round, taking the group’s total capital raised to date to $45m.

The Series B raise comes six months after the company announced a Series A fund raise led by Macquarie Bank and Square Peg Capital and three months after announcing a strategic partnership with Resimac Group.

Powered by Australia’s first cloud native digital mortgage platform, Athena aims to bypass the banks to connect borrowers to superfund backed loans.

The company was founded by two ex-bankers, Nathan Walsh and Michael Starkey, who said they wanted the journey to home ownership to be faster, cheaper and stress free.

Square Peg Capital invested in Athena in Series A and has further solidified its support of the home loan provider by leading the Series B round.

Venture capitalist and co-founder of Square Peg, Paul Bassat, who also sits on the Athena Board, said investing further into Athena proves the potential they see in the business.

He said, “Having worked with Nathan, Michael and the team over the last year I have enormous admiration for the speed at which they have navigated complex financial systems to develop a robust and customer-centric mortgage service.

“Athena is solving a really important problem for home buyers and is certainly one of the most exciting Fintech companies in Australia.

“We are thrilled to back the team again and look forward to supporting them on this extraordinary journey.”

Industry superannuation fund Hostplus has more than 1.1 million members and $37billion in funds under management.

Hostplus has spearheaded investment in the local start-up ecosystem, with more than $1billion of its fully diversified portfolio committed to Australian venture capital managers.

Hostplus chief investment officer, Sam Sicilia, said that “Athena is a great example of disruptive innovation delivering big savings for home loan borrowers”.

Athena COO Michael Starkey said, “We are delighted to have Hostplus and AirTree joining Athena as investors. Athena’s journey has benefited hugely from the insights and support from some of Australia’s smartest investors. It’s clear the timing has never been better to offer a fairer home loan.”

Athena CEO Nathan Walsh said, “During our pilot, we are already seeing the power of the Athena proposition to save money and change lives.

“A single mum who will be able to pay off her home loan 19 months earlier and save $130,000 over the life of the loan.

“A family with three young kids who will save $40,000 on their home loan can now take the family on the first holiday in years. It’s powerful stuff.”

Commenting on the company’s upcoming launch in Q1 2019, Nathan said, “Our key priorities with the investment will be to continue to innovate our platform, invest in talent and scale the business.

Broker Commission Stoush Continues

From Australian Broker.

The Mortgage & Finance Association of Australia (MFAA) has responded to the comments made by Commonwealth Bank of Australia (CBA) CEO Matt Comyn during yesterday’s Royal Commission hearings.

During the hearing, Comyn expressed his preference to scrap broker commissions and implement a fee for service. The MFAA has said it clearly demonstrates that CBA’s priority is shareholder returns.

MFAA CEO Mike Felton said the CBA’s position was not surprising, but was “entirely selfserving”, in that it is designed to destroy competition and reduce the bank’s reliance on the broker channel.

He said, “CBA’s model is anti-competitive and designed to drive consumers back into their branch network, which is the largest branch network of the major lenders.

“Mr Comyn’s solution for better customer outcomes is a new fee of several thousand dollars to be paid by consumers to CBA for the privilege of becoming a CBA customer.

“Cutting what brokers earn by two-thirds would save CBA $197 million, which is good for CBA’s shareholders. However, it would destroy competition, leaving millions of customers without access to credit outside of major lenders.

“In addition, as has been highlighted by both the Productivity Commission and Treasury, consumers are simply not willing to pay significant up-front fees for access to a home loan.”

Felton has also addressed Comyn’s recommendation to follow a model adopted in the Netherlands, under which consumers pay the same fee whether they use a broker or a branch, to ensure channel parity.

He said, “The proposal to adopt the Netherlands strategy is designed to maximise lender revenue. Under this model, broker customers pay the broker’s costs – instead of the bank – or branch customers pay a new fee that will substantially add to the bank’s revenue line and add thousands of dollars to the cost of getting a home loan from a lender directly.

“This is a fantastic win-win for CBA but a massive lose-lose for consumers regardless of whether or not they use a mortgage broker. CBA either acquires a new customer with zero acquisition cost, or it receives a new fee and massively decreased competition, so it can return to the days of four lenders in Australia. It’s a great deal for the bank.

“Any suggestion that this profit will be passed back to customers in the form of lower interest rates is fanciful.”

Felton also questioned the idea that brokers should earn the same as an in-house branch lender, whose overheads are paid by the bank.

He said, “Brokers are small business owners. They are not employees offering one product to customers. They pay rent, and staff, and electricity bills. They have to find every dollar they earn through servicing customers well and developing a strong reputation and referral network.”

The MFAA challenged the statements by CBA that brokers are causing systemic issues in the home lending market – and that it should be a lender who is tasked with ensuring good consumer outcomes for the entire Australian home lending market.

He said, “ASIC’s extensive, data-driven review of mortgage broker remuneration concluded that there was no finding of systemic harm caused by the broker channel,” Mr Felton said. “Additionally, as noted by Treasury in its background paper to the Royal Commission in July 2018: ‘Following a comprehensive report by ASIC in 2017 on mortgage broker remuneration, the industry is progressing reforms that could address the most significant misconduct with the current remuneration model’.”

“Frankly, we were surprised that it is being suggested that one of the major lenders should be tasked with reforming Australia’s home lending market, given the revelations of the past 12 months.

“The Productivity Commission found that: ‘Fixed fees paid by customers rather than commission structures have been proposed, and would eliminate conflicts, but the cost to competition would be high. Consumers would desert brokers, and smaller lenders (and regional communities with few or no bank branches) would suffer much more than larger lenders, if customers were required to pay for broker advice’.”

CBA Had Suggested Broker Fee For Service

Commonwealth Bank’s CEO Matt Comyn spent yesterday (19 November) in front of counsel assisting Rowena Orr QC, discussing many of the issues which came about in commissioner Kenneth Hayne’s interim report, via Australian Broker.

During the hearing Comyn said he supported a flat fee for service remuneration model for brokers and regulation change over trail commission.

He also said he had been in talks as far back as April 2017 considering making the change for CBA, but in the week before feared a “first mover disadvantage” if no one else made the same move.

Comyn was quizzed on research he had put forward to both the Sedgewick review and ASIC’s review into broker remuneration and said that brokers were “sensitive to where the commission structure is set”.

This was due to the findings of one report which suggested that broker flows to lenders increased with higher broker commissions. According to this evidence, one lender gained a 5.9% market share when they offered a limited time commission increase and then lost 5.1% when it stopped.

Orr went on to ask Comyn about emails sent to former CEO Ian Narev, where Comyn had suggested a fee for service model as seen in the Netherlands.

He said it would work the same in Australia, where to level the playing field and “preserve” mortgage brokers, banks would also need to offer a fee to customers for the execution of a mortgage.

He said, “I think it would put a material disadvantage to the brokers if customers paid a broker but they didn’t have to pay a similar amount to a financial institution. I think that would create a distortion.”

Comyn said CBA had been looking at moving to a flat fee model back in April 2017, but was concerned other institutions would not follow.

He said, “We were struggling or grappling with how to implement, and I’m sure we will return to it, we felt there was a genuine first mover disadvantage.

“We didn’t think it would be replicated, absent regulatory intervention. Therefore, we didn’t think we would improve customer outcomes because, effectively, no one else would change their model. We would just originate fewer loans through that channel.”

Confirming Comyn’s stance on the broker remuneration model Orr said, “So you would like to change to a flat fee model?”

Comyn said, “I can certainly see advantages in that model, yes. I would add that that view would not be supported by other participants in the industry but my personal…”

Interrupting, Orr said, “I am asking you about your view, Mr Comyn?”

Comyn replied, “Yes, that is my view.”

Orr said, “You would prefer to move to that sort of model?”

To which Comyn said, “Yes, I would.”

Looking specifically at trail commission, Orr asked Comyn about the services brokers continue to provide after the loan is complete if that was the argument for trail.

Commissioner Hayen interjected and asked if there were any ongoing services supplied by a mortgage broker.

Comyn replied, “I think they would be limited, Commissioner.”

When asked if that meant “limited or none”, Comyn said, “Much closer to none”.

When Orr asked Comyn if he thought trail commissions needed regulatory change, he said “Yes”.

The emails to Narev also discussed how much revenue the broker would lose on an average loan. The broker revenue on an average loan at the time of the email written was $6627 and would be expected to reduce to $2310, in line with the “acceptable band for the price of financial advice”.

Broker groups’ misconduct revealed

The latest batches of documents released by the Royal Commission into Financial Services Misconduct included a litany of poor or illegal behaviour across the broker groups.  This included detailed incidents of falsifying documents and fraud, plus sexual harassment, offensive behaviour and homophobia based on 215 newly released documents from 94 groups. We can conclude this is way more than “just a few bad apples”.

This via Australian Broker.

While most, if not all, broker groups detailed incidents of falsifying documents and fraud, it has been revealed some of the behaviour at Aussie Home Loans included sexual harassment, offensive behaviour and homophobia.

The group has said it will continue to support reporting of such unacceptable behaviour as it to enforces a zero-tolerance policy.

When the Royal Commission into banking misconduct was first established, Commissioner Kenneth Hayne asked financial entities to provide information on misconduct or conduct falling below community standards over the last ten years.

While the incidents listed in the reports were to be the basis for many of the hearings during the Royal Commission, these 215 newly released documents from 94 groups paint a much broader picture.

Looking exclusively at submissions from broker groups, misconduct was listed alongside any action taken and subsequent outcome.

AFG submitted 12 items detailing incidents, which included brokers providing false documents, making administrative errors, breaching the privacy of clients, failing to comply with NCCP obligations and creating false approval letters.

Loan Market also made a submission which detailed 33 incidents of misconduct. Incidents included creating false documents, tampering with documentation, inappropriate use of social media, overstated consumer income and copying and pasting signatures.

Mortgage Choice has listed ten incidents including more than one case of falsifying signatures, providing false loan approval letters, misstating customer financial positions and falsifying documents. The broker group also listed three cases of failing to produce a Statement of Advice to customers.

Smartline listed incidents of altered valuation reports, failure to make reasonable enquiries about a customer’s financial circumstances and inaccurate information on loan applications.

The mortgage group also included an incident where a borrower’s credit card was allegedly fraudulently obtained and used, which at the time of submission was subject to a NSW police investigation.

It also detailed an “isolated incident” relating to theft from a customer and ended with the broker’s licence being revoked and the sale of their franchise.

Yellow Brick Road’s submission also included details of fraud and false documents. In one case a Vow Financial broker was accused of fraudulently gaining access to customer bank accounts and transferring funds.

Commonwealth Bank’s submission included details of behaviour at Aussie Home Loans. It includes details of “offensive or otherwise unprofessional behaviour” directed at employees and/or brokers.

Out of 182 total incidents, there were 29 listed as misconduct relating to false documents and/or declarations and/or misleading information.

There were 19 incidents listed in relation to NCCP breaches, including lack of reasonable care, failing to make the right enquiries and encouraging customers not to disclose the purpose of the loan.

The remaining incidents included, but were not limited, to:

  • Sexual harassment at a work event, and sexual harassment outside of work
  • Using Aussie’s IT system to send “emails containing objection material which could cause offense to a reasonable adult”
  • Accessing customer’s personal details
  • Numerous counts of unprofessional language and tone
  • Pretending to be the customer
  • Mutiple examples of ex-brokers using confidential information to contact former customers
  • Disclosing customer details to other parties
  • “Unprofessional conduct by making veiled threats to customer’s solicitor and allegedly impersonated someone else”
  • Customers experiencing homophobia
  • Derogatory and discriminatory comments
  • Alleged abuse of female in car park by a retail store broker and issue disclosed on Facebook
  • Attending a licenced venue “on a regular basis” and returning to work visibly drunk
  • Gaining access to an Aussie office after a work event, theft and assault
  • Inappropriate sexual language with fellow employee
  • Bullying by senior executives

A spokesperson from Aussie Home Loans said, “Media reports of submissions to the Royal Commission cited isolated incidents of unacceptable conduct involving staff and contractors over a ten year period.

“Aussie provided the Royal Commission a detailed and exhaustive table of incidents as a result of building a culture of actively encouraging and facilitating staff, contractors and customers to speak up and report unacceptable conduct.

“In each and every case of unacceptable conduct, Aussie took appropriate and swift disciplinary action, which included termination of employment and contractor agreements.

“Aussie will continue to actively encourage reporting of unacceptable conduct, to enforce its zero-tolerance policy for such conduct and to enhance its systems and process to prevent, detect and deter such conduct.”

No Evidence of Systemic Misconduct Says MFAA

Industry participants are being to react to the Royal Commission report, of course arguing from their own corner. Here is the latest.

The Mortgage & Finance Association of Australia (MFAA) has released a full response after the interim report of the Royal Commission, saying there is no evidence of systemic misconduct and outlining responses to each issue raised in the original report; via Australian Broker.

The document from the picks up on concerns over commissions and the fact the report said loans written through mortgage brokers have higher leverage, more interest-only loans, higher debt-to-income and loan-to-value ratios, higher interest costs and an increased likelihood that borrowers will fall into arrears.

The association responded to this claim saying that the complexity of borrower situations was not considered, as it was often that “risky loans” gravitated to the broker channel. Customers in difficult financial situations can benefit from using a broker to obtain finance.

It was strong on its stance over broker commissions, saying, “If conflicted remuneration was causing systemic harm to consumers, then the data should show complaints and relative arrears high and rising, competition and consumer support shrinking and prices inevitably rising. But this is not the case.”

The MFAA also said that as the report had not discussed the benefit of competition or consumer choice, the questions it had reported did not take into account wider unintended consequences.

It also accused the interim report of being silent on many of the changes industry groups are already adopting, not taking into account these changes when forming its questions and considerations.

It added, “The MFAA believes the issues raised around remuneration can be effectively dealt with by the specific reforms being proposed by the Combined Industry Forum (CIF), a stronger customer duty and a governance framework with an enforceable industry code focused on conduct and culture.”

It also said, “A consumer fee-for-service model would harm customers (especially in rural and regional Australia), damage competition and threaten viability of broker small businesses. It would significantly benefit the major lenders, providing them with an unassailable stranglehold on the home lending market and interest rates.

“A consumer fee-for-service is not a viable solution to improve transparency around broker commissions and help consumers to make more informed choices.

“It would tip the balance back in favour of branch-based lending by making it significantly more expensive for a customer to use a broker rather than a bank branch to obtain a home loan.

“Smaller lenders that do not have branch networks would be pushed out of the market, stifling competition, and allowing major lenders to restore the massive net interest margins they imposed on mortgage products before broking made access to competitive credit services a reality.”

In its conclusion, the MFAA said it would be calling on policy makers to consider all consequences of any changes to regulation.

It added, “We will also be promoting the fact that there is no evidence of systemic misconduct, and that our industry is focused on making the changes required to continue to improve customer outcomes.

“We know we must ensure that the strong consumer trust and confidence in the broker channel is underpinned by governance and transparency for the long-term sustainability of our industry, and ultimately, in the service of competition in the mortgage lending market.”

CBA Stops SMSF Lending

CBA has decided to remove SMSF lending from its services. Commonwealth Bank of Australia (CBA) has said it is “streamlining” its product offering and as such will no longer offer the ability for self-managed super fund (SMSF) trusts purchase investment property with their fund. Via Australian Broker.

In July, Westpac announced it would be removing its SMSF product. CBA also announced it would be removing low-doc loan products.

CBA’s SuperGear product currently available will cease at close of business on 12 October. New applications and refinancing applications will not be accepted after this date.

Any approvals before 12 October have the condition they must be settled and approved by 28 December 2018.

A CBA spokesperson said in a statement, “As part of our strategy to become a simpler, better bank, we are streamlining our product portfolio and have made the decision to discontinue our ‘SuperGear’ lending product which enabled investment in residential and commercial property through self-managed super funds.

“This change will be effective from close of business on 12 October 2018. We will continue to support our existing customers who have these loans with us.”

For brokers, commission payments will continue as per existing agreements.

NAB makes changes to broker commissions

From Australian Broker.

NAB is introducing the changes in line with recommendations of the ASIC Broker Remuneration Review and Sedgwick Retail Banking Remuneration Review.

From November 2018, NAB will calculate the upfront commission a broker receives for a home loan based on the amount drawn instead of the total approved facility, and net of any offset facility.

This will mean that if a customer receives a $500,000 home loan and puts $100,000 of that loan into an offset account, the broker will receive commission on the drawn amount of $400,000.

NAB executive general manager of broker partnerships, Anthony Waldron, said NAB is committed to mortgage broking as a channel of choice for consumers, and that this change will support brokers to continue to put customers’ interests first.

He said, “Mortgage brokers play an important role in helping Australians arrange their home loans, and NAB continues to value and support them.

“We recognise that Australians increasingly use mortgage brokers, and we want to continually improve as an industry to deliver the best outcomes for Australians.”

Waldron is also chair of the Combined Industry Forum (CIF), which is made up of industry bodies, lenders, mortgage brokers and their representatives, aggregators, introducers, and consumer groups.

“As an industry, we are working together to make changes that are focused on doing the right thing, and to improve consumer trust,” Waldron said.

The CIF released its reform package in December 2017 – six principles that members are committed to implementing to ensure better consumer outcomes, preserve and promote competition and consumer choice, and improve standards of conduct and culture in mortgage broking.

The industry has also proposed a standard definition for ‘good customer outcomes’, which looks at the size and structure of the loan, affordability, responsible lending requirements and individual customer needs.

In coming months, NAB has said it will make further changes in line with the agreed principles of the CIF to ensure better consumer outcomes and improved standards of conduct and culture, while preserving competition in mortgage broking.

HBSC To Partner With REA Group’s Smartline.

From Australian Broker.

HSBC Australia has confirmed its third broker partnership with REA Group’s Smartline.

HSBC’s products will be available from this month, including Home Value which is available at 3.64% p.a. (comparison rate 3.66% p.a.*) for owner occupied loans paying principal and interest.

In addition, qualifying Smartline customers will have access to HSBC Premier, the bank’s premium banking and wealth management service.

HSBC Australia returned to the broking space with Aussie Home Loans in 2017 and announced its second broker partnership with Mortgage Choice, in January of this year.

Speaking to Australian Broker, Alice Del Vecchio, the bank’s head of mortgages and third party distribution, said, “We hand-picked Smartline because they are a great fit for us.

“They are an extremely compliant business and they work to the highest global standards, but beyond that they also have a really good franchise model. The teams there are long term and the average tenure is 10 to 12 years, so you have some really long term, established brokers who know the market and know their stuff. They really appreciate having the opportunity to bring a brand like ours on board and the value and opportunity it can bring,” she continued.

Smartline has arranged mortgages for more than 275,000 home owners and has a nationwide network of 400 brokers. HSBC joins more than 30 lenders on the aggregator’s panel.

Sam Boer, CEO of Smartline said, “HSBC is a well-recognised global brand with a comprehensive range of home loans that will help us meet the needs of our customers. We take pride in the longevity of our customer relationships and the strength of our customer service, and we believe this partnership is a great fit.”

Seven lenders increase rates in one week

Seven lenders announced mortgage rates changes over the week ending 20 August, according to latest data from Canstar. In total, changes were made across more than 35 products, via Australian Broker.

Heritage bank was recorded making changes to its owner occupier and investment home loan products, changing its fixed rate products by decreases of 10 basis points to increases of 14 basis points. Heritage also recorded decreasing its Investment Discount Variable product by 10 basis points to a rate of 4.14%.

Meanwhile, Greater Bank increased both its owner occupier and investment variable rate products by 9 basis points. Goldfields Money reduced the standard home loan rate of its owner occupier product from 4.75% to 4.49%, and IMB dropped its accelerator – owner occupied 2 years rate from 3.82% to 3.59%. Community First CU lowered its “Accelerator Home Loan Inv True Value Var Hl – P&I 250k+” rate from 4.67% to 3.99%.

The average basic variable rates for the past week were:

  • Owner Occupier P&I Home Loans: 4.17%
  • Owner Occupier IO Home Loans: 4.64%
  • Investment P&I Home Loans: 4.58%
  • Investment IO Home Loans: 4.88%

However Australia’s largest member-owned bank CUA, made the largest increase, with interest rates up .25 percentage points across more than 20 products.

The increase applies to more than twenty P&I and interest-only variable home loan products, including the fresh start basic variable P&I which is now 4.32% (comparison rate 4.33%) for owner occupiers and 5.08% (comparison rate 5.13%) for investors.

It is an increase that Canstar group executive of financial services Steve Mickenbecker described as  having the potential to become “a way of live”.

“The CUA move goes beyond what we have been seeing, and at 0.25% is the sort of increase that could become a way of life when the Reserve Bank eventually starts the upward move in the cash rate,” he said.

The bank’s chief sales officer, Paul Lewis said the rate hikes were not made lightly but were necessary given funding costs were expected to remain high in the coming year.

“CUA has absorbed these costs to date and we’ve delayed passing these costs on to borrowers. But over recent months, we’ve seen many other lenders have already reviewed interest rates in light of these higher funding costs.”

The Reserve Bank of Australia’s cash rate is currently at a historic low of 1.5% for a record 24th consecutive month, as the central bank has kept an unchanged economic growth forecast at a little over 3% in 2018 and 2019.

“Despite housing market headwinds from tighter credit conditions, the prospect of mortgage rates remaining reasonably stable should help to keep a floor under housing demand,” CoreLogic head of research Tim Lawless said in a statement.

CoreLogic data show that while the cash rate has remained unchanged for two years, the average standard variable mortgage rate has actually reduced by 5 basis points for owner occupiers and increased by 30 basis points for investors.

“Risk on” for LMI sector, as delinquencies rise

From Australian Broker.

S&P Global Ratings has maintained its low risk insurance industry and country risk assessment (IICRA) for Australia’s mortgage insurance sector, awarding the second strongest rating on a six point scale.

According to a release from the ratings agency, “In our opinion, product risks for mortgage insurers remain elevated, reflecting the recent history of sustained house price appreciation across the Australian housing market.

“House prices in Australia’s major cities of Melbourne and Sydney have declined in the past 12 months, easing some risk attributes. We expect the house price declines in Australia’s largest cities to be orderly, while risks associated with slow wage growth and relatively high debt to income levels remain,” the statement continued.

Responding to the results, QBE chief executive officer Phil White says the low risk is due to the Australian market’s high diversification.

Speaking to Australian Broker, he said the diversification in borrower profiles, geographic distribution of mortgages, and the range of banks with LMI in the marketplace enhances strength.

“Diversification is one of the fundamental things that underpins Australia. The second part is how LMI was designed to meet the needs of our market. The regulatory regime here is extremely good and that is underpinned also by a very disciplined underwriting environment.

“I’m not too worried about some of the scare mongering there might be around the forecast for house prices or the economy more broadly. LMI has been designed to suit the Australian market and the future for it right now is quite positive,” he continued.

However, Martin North, principal of Digital Finance Analytics, says the current environment is “risk on” and, noting rising delinquencies in WA and other areas, those risks are set to rise.

“Generally it is risk on for the insurers and the majors. The banks that have released their financial results this reporting season are showing slightly higher 90 day plus delinquency rates and that was also true in the most recent Moody’s report. It’s not a huge increase but the trend is definitely up.”

Drawing on independently collated data, North says 30.4% of owner occupied borrowing households are finding it difficult to manage repayments currently. This equates to 970,000 households, of which more than 23,000 are in severe stress.

“They’re making the payments but it’s difficult and this is the highest that number has ever been,” he commented.

In contrast to S&P’s outlook, North concluded, “Mortgage rates will rise slightly because of international funding pressures. Of course the US will put its rate up once or twice more this year and that will flow through. It’s risk on rather than risk off and I think we need to watch this very closely.”