- Written by Jessica Houston
The mortgage broking industry and non-bank lender sectors have gone through considerable consolidation and change as a consequence of the Global Financial Crisis (GFC) and the National Consumer Credit Protection Act (NCCPA). Specifically, during the 1990s/2000s the share of the profit pool on a loan swung from the majority of it going to the Product Manufacturer to most of it going to the Distributor. A consequence of the GFC has been that the pendulum has swung back in favour of the Product Manufacturer. Mortgage brokers have left the industry as commissions have been slashed and the banks seek to re-take control of the customer and the associated profitability.
Major brokers have either been sold to banks, e.g. CBA purchased 30% of Aussie Home Loans, and Westpac purchased the brand and distribution arm of RAMS. Chairmont has worked with a number of non-bank lenders and brokers on a variety of matters, including sales forecasting, workflow, training and compliance issues. As Chairmont has an Australian Credit Licence (ACL) it is well placed to understand the issues.
Chairmont has assisted a number of non-bank lenders, and also banks, in managing their own non-bank lenders (mortgage managers). This work has included setting the mortgage manger framework, developing financial modelling tools, and lead tracking applications. This work has not just been for the mortgage industry, but also for asset financing. The asset financing work has included examining the revenue models and Credit v Asset assessment conditions and processes as part of Asset pricing.
As a result of the GFC the securitisation markets froze for non-bank lenders and alike, and as warehouse facilities became full there was limited ability to term out. The Australian Federal Government has attempted, through the Office of Financial Management (OFM), to assist by providing term out facilities, but this has had limited success. Until wholesale credit spread fall and there is a return of trust to the wholesale markets there will be limited activity in the securitisation markets.
Chairmont has been involved in a number of securitisation exercises both at the structuring level and also importantly at the underlying asset/transaction level. This involvement provides valuable insights into the way investors rate and manage debt. It is interesting to note that the Federal Government intends to discontinue its support for the securitisation markets through the OFM.
There has been a major rationalisation of the industry since 2008 with many brokers leaving the industry, others being taken over, while others have developed new business lines. A current strategic discussion point is whether mortgage managers will continue to be squeezed out or whether they will return in earnest armed with additional skills such as financial planning and risk, once economic conditions improve.