Navigating non-banks

Traditionally, non-banks have gone after the space the banks (arguably) don’t go after – the self-employed, low docs, distressed borrowers. The aim is to establish them on a higher priced product, get a few years of lending history and ultimately get the borrower back on a prime mortgage with a major.

That said, many non-banks now offer a prime product too, meaning the borrower need never move.

The other obvious difference is access to a branch network.

Advantedge’s general manager of distribution, Brett Halliwell – who’s quick to stress his customers are most often investors – says most non-bank products come without the typical bells and whistles. “Majors offer the full suite – a transaction account, a credit card, the full branch network,” he says.

“What we do is very different: we’re a monoline mortgage lender – we don’t offer those products and services. The consumer experience, and from a competitive sense, is very much a different offering than say what the majors offer.”

What products do non-banks offer?

Non-banks offer the full flotilla– from finance for bankrupts right through to highly competitive loans for investors.

“That’s the thing with non-banks,” says Mr Halliwell, “they’ve all got their niche and they all serve different parts of the market.

“Other lenders play in different parts of the credit spectrum, helping customers who don’t qualify for traditional finance, and the great thing for non-banks is that there are different parts for different players.

“Take Advantedge: we’ve been extraordinarily successful in the mainstream market, targeting the majority of mum and dad investors with really good  fit-for-purpose products,” he says.

Are non-banks merely for distressed borrowers?

Admittedly, this has been their reputation in the past, but as mentioned, it’s an image nonbank lenders are keen to throw off. Pepper’s director of sales and distribution, MarioRehayem, says Pepper now actively competes in the prime space against the banks and not just the specialist space that Pepper has traditionally occupied.

“Entering the prime market is a necessity for any specialist lender in today’s market,” Mr Rehayem said.

“Pepper entered the prime marketon the back of broker and customer demand.

“We entered the market with a twist – we introduced a prime product that has no attachment to a mortgage insurer, which gives the broker a more flexible product to offer their clients in certain niches.”

Where do non-banks get their funding?

From all over. Typically many non-banks – particularly the bigger players – get their funding from the majors. Take Advantedge as an example: although a non-bank lender, it’s fully owned and funded by NAB.

RESIMAC’s chief commercial officer, Allan Savins, admits that the industry’s funding became a real issue during the GFC, when the majors were seen as the only safe option.

“RESIMAC is very transparent in terms of how it funds its loans,” Mr Savins says.

“We have long standing relationships with both Westpac and NAB and have successfully completed over $15 billion in securitised transactions.”

Mr Reyahem says it was only Pepper’s 15-year relationship with the majors that helped it remain “solvent and viable” back in 2008.

“We’re very upfront about our funding arrangements,” he says. “In fact, we use this as proof point in our advertising as to the strength of our partnerships and the fact that we’re able to offer long-term loans on the back of this.”

Do I need to be accredited to use a non-bank lender?

Yes. The accreditation process is done in conjunction with a broker’s aggregator and is typically a basic accreditation form and some training with a business development manager.

Another advantage of the nonbanks is that many don’t have volume quotas for continued accreditation, as the banks do.

Why are some brokers reticent about offering clients non-bank products?

Mr Reyahem believes it’s a minority of brokers who don’t offer clients non-bank products and says that’s mainly due to inexperience – something Pepper is addressing with its education programs and BDMs.

Unlike the majors, nonbanks also don’t have their ‘gold brokers’, meaning every broker is equally catered for, Mr Reyahem says.

Allan Savins agrees that it’s an education issue and says brokers should offer a full suite of products – both bank and non-bank – to clients. “I think it’s important for brokers to look at expanding their offering and making the leap from being a transaction-based broker to a solutions-based broker,” he says.

“RESIMAC’s research indicates that, in general, brokers are offering a non-bank lender to their clients as one of the options. However, a lack of immediate brand recognition by the client may deter some of these clients from considering that option.”

Is there more back-end paperwork with a non-bank lender?

That’s a perception that Mr Rehayem is keen to dispel. He says the idea that a non-bank loan has “longer turnaround times and more paperwork is far from the truth”.

He adds: “We present the brokers with an assessed decision – not an automated decision that bears no value – within a few hours. Pepper prides itself on providing solutionsfor brokers where a major cannot, and I believe every Australian that endures a life event deserves a second chance.”

Allan Savins agrees the paperwork required to support an application is scalable and, yes, more complex transactions – typically the domain of non-banks – can take a little longer.

But, he’s quick to stress that “on a straightforward loan application the paperwork requirements at RESIMAC are no different to those of most banks”.

What support will I get from a non-bank lender?

When it comes to broker support, the universal message from the nonbanks is that their offering is superior to that of the majors.

“To support borrowers, secure online access and a customer service help-desk are available,” Mr Savins says of RESIMAC’s support.

“Borrowers have access to a web-based platform to view their loan details and update non-critical data, such as contact details. Borrowers may request redraws and obtain details on loan repayments through the loan enquiry website.

“RESIMAC also provides a 24-hour interactive voice response system, which allows borrowers to access account information, request interim loan statements, apply for redraws, and perform other functions.”

Brett Halliwell says that Advantedge’s BDMs are spreading the message to brokers: “We do workshops where we go and talk about what we do,” he says.

“It’s not spruiking, it’s about being interactive and it’s about us trying to understand broker needs. It’s not a ‘put it out there and they will come’; it’s very much about a partnership to build that understanding.”