A Q&A with Firstmac's Kim Cannon on challenges, opportunities and white label products.
MPA talked to Firstmac managing director, Kim Cannon about the challenges facing their business model, the new opportunities for non-banks, and whether white label is stealing the show
Years ago, the role of wholesale lenders was simpler. They created innovative and wellpriced products, and sold these to mortgage managers, who delivered them, via the broker, to the end customer. Now the landscape has shifted fundamentally, and wholesale lenders are involved in a number of revenue-generating activities, including white-label partnerships with aggregators.
APRA’s restrictions on investor lending, for example, may push some of this lending away from banks, whilst the Financial System Inquiry – the recommendations of which are yet to be implemented – advised tackling the cost of funding. Yet the FSI also recommended brokers disclose ownership structures, raising fundamental questions about the role of wholesale lenders in the value chain. Either way, wholesale lenders will be in the spotlight like never before.
MPA: Is white-label lending – rather than mortgage managers – the future of the wholesale lender business model?
KIM CANNON, FIRSTMAC: Larger groups and aggregators will continue to go down the white label route, but that doesn’t mean mortgage managers will be any less relevant in the modern market. They will still have their place, and they have agility in their favour. They have greater capacity to respond to market forces, and as time passes, this should prompt them to evolve their business model.
The face of lending is changing, and a sector of the market will find they can’t always do what they’ve always done. They should examine their distribution model and may consider diversifying the way they get their products to market.
Mortgage managers are able to be more solutions-based for their clients due to the variety of funding sources available to them. Those options may fluctuate, though, which may again prompt mortgage managers to evolve their lending model.
MPA: Can mortgage managers provide a viable alternative for investor financing now that APRA is constraining bank lending?
KC: Mortgage managers are uniquely placed to provide a niche service to premium investor clients. The macro-prudential approach of regulations has resulted in many and varied responses by lenders. Credit policies from one lender to the next have never been less consistent as each responds to their own portfolio positioning and the requirements of the regulator. This makes the picture for investor borrowers most unclear.
The macro-prudential rules are likely to have the most impact on fringe-leveraged investor borrowers, who may be forced out of the market. For good-quality investor clients, doors will remain open. However, it will be for the savvy mortgage manager with an established niche to direct and guide that investor in how best to set up their finances, and which lenders will be the best fit for each client.
Years ago, the role of wholesale lenders was simpler. They created innovative and wellpriced products, and sold these to mortgage managers, who delivered them, via the broker, to the end customer. Now the landscape has shifted fundamentally, and wholesale lenders are involved in a number of revenue-generating activities, including white-label partnerships with aggregators.
APRA’s restrictions on investor lending, for example, may push some of this lending away from banks, whilst the Financial System Inquiry – the recommendations of which are yet to be implemented – advised tackling the cost of funding. Yet the FSI also recommended brokers disclose ownership structures, raising fundamental questions about the role of wholesale lenders in the value chain. Either way, wholesale lenders will be in the spotlight like never before.
MPA: Is white-label lending – rather than mortgage managers – the future of the wholesale lender business model?
KIM CANNON, FIRSTMAC: Larger groups and aggregators will continue to go down the white label route, but that doesn’t mean mortgage managers will be any less relevant in the modern market. They will still have their place, and they have agility in their favour. They have greater capacity to respond to market forces, and as time passes, this should prompt them to evolve their business model.
The face of lending is changing, and a sector of the market will find they can’t always do what they’ve always done. They should examine their distribution model and may consider diversifying the way they get their products to market.
Mortgage managers are able to be more solutions-based for their clients due to the variety of funding sources available to them. Those options may fluctuate, though, which may again prompt mortgage managers to evolve their lending model.
MPA: Can mortgage managers provide a viable alternative for investor financing now that APRA is constraining bank lending?
KC: Mortgage managers are uniquely placed to provide a niche service to premium investor clients. The macro-prudential approach of regulations has resulted in many and varied responses by lenders. Credit policies from one lender to the next have never been less consistent as each responds to their own portfolio positioning and the requirements of the regulator. This makes the picture for investor borrowers most unclear.
The macro-prudential rules are likely to have the most impact on fringe-leveraged investor borrowers, who may be forced out of the market. For good-quality investor clients, doors will remain open. However, it will be for the savvy mortgage manager with an established niche to direct and guide that investor in how best to set up their finances, and which lenders will be the best fit for each client.
MPA: Does the cost of funds remain a significant competitive disadvantage for the sector?
KC: The cost of funds has reduced but has not reached pre-GFC levels. Mortgage managers are in a good position to stay solutions-focused and provide a superior lending experience for the customers and introducers. White-label providers and mortgage managers should identify niche areas that add value rather than just concentrating on the interest rate. They will maintain their advantage if they choose to do business with funders who have invested in effective back-end systems and who have proven their resilience during tighter economic times, like we saw in the GFC.
MPA: In the wake of the Financial System Inquiry’s final report, should consumers be more aware of what wholesale lenders do?
KC: It has always been important for borrowers to stay up to date with all sectors of the mortgage lending market, because it helps them identify trends in lending. That can give savvy investors an edge in building their portfolio and getting their timing right for buying, diversifying or divesting.
Since the FSI, investors are probably more likely to monitor the market closely to understand their best options for borrowing. Under these circumstances, mortgage managers, supported by their funders, will do well to continue their campaigns to reinforce their position in the market, which is an important segment and a distinct point of difference.
MPA: Do you tailor your products for a particular section of the market?
KC: Firstmac only writes full-doc loans, with no subprime or non-conforming loans. We recently completed a $1bn RMBS transaction, of which approximately 80% of the loans were 80% LVR or lower. We have a reputation as a product innovator, and we will continue to tailor and customise products to meet the market.
MPA: Will the majority of brokers in the future sell their own branded white-label products?
KC: There is no impetus for the majority of brokers to sell their own white-label products, but the larger groups and aggregators may be prompted to move further into the space. They may see it as a way of diversifying their income and gathering margin while building their brand awareness.
KC: The cost of funds has reduced but has not reached pre-GFC levels. Mortgage managers are in a good position to stay solutions-focused and provide a superior lending experience for the customers and introducers. White-label providers and mortgage managers should identify niche areas that add value rather than just concentrating on the interest rate. They will maintain their advantage if they choose to do business with funders who have invested in effective back-end systems and who have proven their resilience during tighter economic times, like we saw in the GFC.
MPA: In the wake of the Financial System Inquiry’s final report, should consumers be more aware of what wholesale lenders do?
KC: It has always been important for borrowers to stay up to date with all sectors of the mortgage lending market, because it helps them identify trends in lending. That can give savvy investors an edge in building their portfolio and getting their timing right for buying, diversifying or divesting.
Since the FSI, investors are probably more likely to monitor the market closely to understand their best options for borrowing. Under these circumstances, mortgage managers, supported by their funders, will do well to continue their campaigns to reinforce their position in the market, which is an important segment and a distinct point of difference.
MPA: Do you tailor your products for a particular section of the market?
KC: Firstmac only writes full-doc loans, with no subprime or non-conforming loans. We recently completed a $1bn RMBS transaction, of which approximately 80% of the loans were 80% LVR or lower. We have a reputation as a product innovator, and we will continue to tailor and customise products to meet the market.
MPA: Will the majority of brokers in the future sell their own branded white-label products?
KC: There is no impetus for the majority of brokers to sell their own white-label products, but the larger groups and aggregators may be prompted to move further into the space. They may see it as a way of diversifying their income and gathering margin while building their brand awareness.
