Aggregator panel selection - Tools of the trade

Almost immediately funding dried up for non-bank lenders, forcing the federal government to provide support in the form of $8 billion towards propping up the securitisation market.

But $8 billion can only go so far in a circa $100 billion a year industry.

With the final recipients of that support now mandated, non-bank lenders and mortgage managers without access to funding have found it increasingly difficult to compete – despite strong broker sentiment towards the sector.

The latest quarterly Mortgage Business sentiment survey has revealed that over 70 per cent of brokers would recommend a non-bank product.

While such positive sentiment is encouraging, the non-bank sector is still reeling from an acute lack of funding, as well as a borrower flight to the major banks.

When GE Money abruptly exited the mortgage market in late 2008 it dealt a body blow to the industry. The financial heavyweight unceremoniously dumped every aggregator panel and maintains it has no plans to re-enter the mortgage market.

Mortgage Choice lost GE Money and two other lenders from its panel of 25, but has since added another – mortgage manager Homeloans Ltd.

While Michael Russell, chief executive of Mortgage Choice, says a lack of funding forced many lenders out of the market, he believes the signs are positive for a recovery. But when that recovery will kick in remains to been seen.

“Eventually funding will return and when it does it will encourage the non-bank lenders to return,” says Mr Russell.

PANEL CRITERIA TOUGHER

AFG general manager of sales and operations Mark Hewitt says a lender’s ability to access funding now plays a pivotal role in deciding which lenders to put on AFG’s panel.

While liquidity is a major contributing factor, Mr Hewitt says other capabilities such as service capacity, brand value, BDMs and online presence are also important, as is the ability of the lender to pay trail commissions and offer competitive products.

Above all else, Mr Hewitt says it is imperative the lender is able to offer something different, unique, and niche.

“They must also provide good ground support and be able to adhere to our product code,” he says.

Aussie CEO Stephen Porges says he constantly monitors the performance of the lenders and product providers on Aussie’s panel. There are currently 13 residential lenders on the panel, after having removed two lenders during the last financial year.

“Once we have agreed to add a lender to our panel, we continue to keep a watchful eye over them. If an issue arises which prevents them from performing their duties we will strike them off our list,” says Mr Porges.

Although Aussie formally assesses its lender panel once a year, Mr Porges says informal reviews are conducted on an ongoing basis and lenders can be removed at any time.

Of the 10 aggregation groups Mortgage Business surveyed for this report five formally assess their lender panel on an annual basis. But each group admitted to casting a watchful eye over their panel “more frequently” or “on a monthly basis”.

A key finding that emerged is the significance of broker opinion as a factor influencing which lenders are included on the panel.

The majority of aggregators that review their panels on an ongoing basis say they would make an exception if broker demand indicated that a new lender should be included. They would also not hesitate to review the panel if some lenders weren’t coming up to scratch.

Interestingly, few aggregators felt minimum volume requirements would impact their panel selection (see sidebox below).

THE DIVERSIFICATION DRIVE

Once the province of a few forward-looking brokers, the shift to diversification has been accelerated by the exit of funders, a dramatic reduction in the availability of credit, and perhaps most importantly, the cuts to lender commissions that have threatened broker incomes.

Mark Hewitt says AFG is constantly on the lookout for lenders that can help bolster their diversification capabilities, given the increasing importance of diversification to both brokers and aggregators.

“It [diversification] is the cornerstone on which the profession is built,” says Mr Hewitt.

This is borne out by the survey results. Seven of the 10 groups Mortgage Business surveyed said they aimed to further diversify their product offerings.

According to Steven Kane, CEO of FAST, diversification can benefit brokers in two powerful yet different ways – and help cement their place in the local community.

“Diversification helps a broker add to their bottom line and their hip pocket,” he says.

“When a broker diversifies their product offering they effectively become a one-stop shop which benefits them and their clients.”

Mr Kane says FAST is looking to increase its presence in the financial planning sector, while Mortgage Choice has also singled out diversification as a key plank in its strategic plan.

While residential mortgages remain Mortgage Choice’s core focus, Michael Russell says the business is looking to expand into lease finance and insurance. He says diversification is critical to business longevity for its ability to increase revenues and strengthen and enhance customer relationships.

NEW ERA, NEW OPPORTUNITIES

In 2008, Mortgage Business identified that the greatest aggregator demand for their panels was commercial products. In fact, when it came to new products the aggregators favoured, those firmly outside the residential mortgage bracket won the day.

When asked what segment they expected to grow over the coming 12 months, six out of the 10 groups surveyed this time around said residential investor products offered the greatest potential.

According to a recent Loan Market survey, a significant number of current investors are hoping to capitalise on the current opportunities in the housing market and low interest rates.

Of the 800 survey respondents, 82 per cent said they would invest in property within 12 months and 34 per cent were looking for a suitable investment property while interest rates are low.

Loan Market chief executive John Kolenda says investors will find more opportunities after the winding down of the boost to the first home owners grant.

Providers of leasing finance and insurance are also well positioned to increase distribution via aggregator broker channels, with more than half those surveyed identifying these products as a key area of growth for their members over the coming year.

THE VERDICT

Aggregators are increasingly expanding their product panel in areas outside residential lending as the industry pushes further down the track with diversification. One thing is clear: when it comes to achieving or maintaining panel status, providers must be able match demand with supply.

Moreover, lenders must be able to access funding and offer a value proposition that is sufficiently different from their competitors. No easy task... but for an industry that is used to meeting fresh challenges head on it is an achievable one.

TARGET YOUR MARKETING PITCH

A marketing message tailored to a specific audience will generate better results.

AS OUR economy improves and housing markets start to kick into gear, targeting a specific demographic can pay dividends for brokers.

Most brokers have a diverse mix of clients however just because your customers span a broad range of market segments doesn’t mean that your marketing initiatives should.

Some of the most profitable businesses in the world have been built on targeting niche markets, despite having a wide customer base. Take McDonalds for example. It segments its marketing to particular target demographics: Happy Meals for kids and Healthy Options for the health conscious… and it’s a winning formula.

Ten years ago brokers could attract business without having to put too much thought into their marketing strategy. Back in the early days of broking simply turning out an advert promoting the full gamut of their services was sufficient enough for most brokers to generate inquiries.

Additionally, a decade ago brokers were largely competing with the banks. However today, in a crowded marketplace, they compete with each other.

Much the same as in any other industry, there are now specialists that have honed their services to very specific groups, and if you too are to win business from this segment, your message will have to strike a chord – backed of course with the capabilities to deliver.

Rather than trying to attract every borrower with the same marketing message, develop different communications for each segment. The closer you reflect their needs, concerns and aspirations in your marketing the deeper connection you’ll make.

For example, as investor activity picks up tailor a specific marketing campaign to this target audience.

This may comprise of a number of different activities that, when combined, will give a powerful pull to this sector. This may include an advertising campaign in the local press supported by a press release or an article to be run in the local paper.

To further support this campaign a section could be added to your website highlighting this specialisation and a simple information sheet or flyer could be developed as a hand out.

This strategy can then be applied to each and every market segment, giving focus to your sales and marketing initiatives for every demographic. The results will be a closer connection with prospective borrowers, which will result in a better hit rate.