11/06/2008 - 22:00

Credit squeeze takes toll on brokers

11/06/2008 - 22:00

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Western Australia's mortgage broking industry is bracing for tough times ahead as the fallout from the global credit crunch continues to unfold.

DOLLAR DECISION: Mortgage lender Wizard Home Loans is the latest casualty of the crisis in the mortgage broking industry, with owner GE Money moving to sell the business. Photo: Grant Currall

Western Australia's mortgage broking industry is bracing for tough times ahead as the fallout from the global credit crunch continues to unfold.

Three of the big four banks have cut their commission rates to brokers, while housing finance approvals continue to fall (by 3 per cent in April).

Westpac moved first, reducing its commission rate by 35 per cent, which it said was needed to offset increased wholesale funding costs.

Since then, St George, Commonwealth Bank and NAB have followed suit, cutting their up-front commission rates and restructuring trail commissions, which typically last for the life of a loan.

Other lenders are yet to make a decision, although a number - including Suncorp, ING and ANZ - are expected to adopt a similar position in the next month.

While BankWest has pledged to hold its commission rate, it removed 59 of 76 brokers on its lending panel last month.

Smaller players have also felt the impact, with lender Wizard Home Loans being put up for sale by owner GE Money, with the industry expecting further consolidation.

The full impact of the recent turmoil is yet to be felt, according to national mortgage aggregator PLAN, which has experienced a 20 per cent fall in the volume of loans processed over the past six months.

"The flow-on can take anywhere up to three months, and by the time we get paid, it's usually a month after settlement, so it really hasn't been felt yet," PLAN WA manager Barry Harrison said.

PLAN, which has more than 400 brokers in Perth and about 20 per cent of local market share, has responded in part by training its staff in other lending areas, such as commercial loans and insurance.

Osborne Park-based Finance and Systems Technology (FAST) has adopted this diversification strategy, recently introducing general insurance and a car buying service to its business, which is 19 per cent owned by Challenger Financial Services.

The company's co-founder and executive chairman, Anne Marie Syme, said brokers were being forced to take a more holistic approach, combining mortgage lending with financial services.

"Brokers are looking at ways of attracting loans and looking at value-adds as well, in order to supplement the income they're losing," she said.

"I think that will be the new wave in the industry. Gone are the days when you just do loans."

Ms Syme said she expected a major consolidation in the industry, with smaller players being forced out.

However, she said the WA market was already characterised by a few large companies, which had good cash reserves and were more insulated than smaller players.

"The industry has never seen such a major change as the credit crunch resulting from the US sub prime crisis," Ms Syme told WA Business News.

"[But] you have to remember that WA is completely different to the other states. We're licensed and we're an older industry. [Our players] have been around for a long time and have a lot of capital behind them."

West Perth-based Australian Finance Group also believes WA's licensing restrictions have created a barrier to entry for marginal operators, meaning fewer brokers are likely to exit the industry in WA than in other states.

AFG expects consolidation will result in a 33 per cent reduction in the number of brokers operating nationally, from about 15,000 to 10,000.

The company's general manager of sales and operations, Mark Hewitt, said AFG had been largely unaffected to date, despite moving to lay-off 37 employees (mainly administrative staff) last month.

"We're fortunate because we have a large share of the market - we're profitable and well-established. But we did make some changes to staffing levels in anticipation of this. We were geared up to do $3 billion in loans and we're only writing about $2.2 billion," he said.

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