MPA asks how Better Mortgage Management CEO Murray Cowan has weathered the GFC, why brokers remain a sound distribution model, and how BMM took out non-bank of the year for the second year running.
MPA asks how Better Mortgage Management CEO Murray Cowan has weathered the GFC, why brokers remain a sound distribution model, and how BMM took out non-bank of the year for the second year running.
Murray Cowan is one individual very well known to the broker channel, having been involved in it at Citibank since the lender initially pioneered partnerships with third party distributors many years ago. Fast forward to 2014, and Cowan has only just successfully steered Better Mortgage Management to its second consecutive year as the highest rated lender in MPA’s Brokers on Non-banks Survey. MPA sat down with Cowan to ask him for his views on BMM’s future, non-bank competition, and the evolving role of brokers.
MPA: Better Mortgage Management has been rated by brokers as non-bank of the year for the second year running. What was your initial reaction to the news?
Murray Cowan: Our first reaction was ‘Oh, wow!’ We are humbled and proud of the result. At BMM we are proud of our business, and we are very humbled by all the support from our broker partners who voted in the survey. It’s also very rewarding to see that all of the hard work the whole team has done over the past twelve months has been recognised! We had been talking about it a little bit here at BMM, and thought perhaps some of the brokers may have marked us a bit harder the second time around. Like in life, you can achieve things once and it may seem like good luck or a one-off, so to back it up the following year is substantial.
Proudly 'old school'
MPA: Is there anything in particular that BMM has achieved or rolled out in the past year or so that you feel has contributed to your results?
MC: We focus on brokers - we don’t have any other distribution channels. Certainly, the banks have multiple distribution channels, and some of the other non-bank lenders might have other channels as well, whereas we just have the one channel - brokers. So I believe that always ensuring we are focussed on helping our broker partners, being clear about what we do, establishing true points of differentiation and demonstrating them is an initiative in itself. Now, brokers sometimes say, ‘all you mortgage managers are the same, because you have all got the same funders’. But we have gone out of our way to negotiate a differentiated product offering, and that allows us to do things that are different - that has definitely helped open doors and get into meetings and get the conversations and relationships started. To us, there is little doubt that product innovations like our Capital Specialise range and more recently the launch of our Flexi Ultimate product have earned us merit points in the eyes of brokers. We also still have to back it up with good service and looking after the people we work with.
MPA: Do you think that mortgage managers and non-banks can significantly grow market share in today’s market?
MC: There’s no hiding the stats. Looking at the pre-GFC market, the big four banks and their subsidiaries made up 65% of new lending volumes. Now that number is more like 85%. So we aren’t writing the same level of business as we were pre-GFC. But compared to those days, we’ve re-shaped the business and focused again on going forwards. I think it’s a case of understanding what you do well and articulating that well in the market. We are now hearing news of improved funding and competitive rates for our wholesale funding partners, and we are hopeful that things like the current Financial System Inquiry could lead to some good outcomes and help us to get back to being as competitive as we were seven years ago.
MPA: So you see some cause for optimism given the Financial System Inquiry? Is there anything in particular you are hoping to come out of that?
MC: In terms of the prospects for growth in the non-bank lending sector, some might look at us and say we are eternal optimists. But I think certainly with the FSI, there has been quite a few mentions of the need for growth in competition, and it’s interesting to note that in quite a few different areas now it has been acknowledged that non-bank lenders were the drivers of competition, by driving rates down and reducing the margins of the big banks in the 90’s. Due to the GFC and the banks benefitting from Federal Government guarantees on both deposits and the big banks’ borrowings, it has undone some of that position, and it seems as if there is some sort of acknowledgement now that the big four banks have been “over supported” and of a need to level the playing field. It is interesting to note that Adelaide Bank - which is one of our funders - are party to that suggestion, and so we would like to think they can gain some benefits that could be passed on in their funding and offering to us down the line. The MFAA has promoted following the Canadian model as a way forward, and if Australia could get half way to where Canada is in terms of competition, it would be a reasonable position for non-banks and it wouldn’t put a strain on Australia’s balance sheet.
MPA: Why should brokers consider using BMM and other non-bank lenders?
MC: Brokers should consider non-bank lenders that specialise in the broker market only - who don’t have any channel conflict - as the ‘natural partner’ of mortgage brokers. We have similar backgrounds and history as that of the brokers, and going forward a similar objective. Lenders with other distribution channels have the issue of channel conflict and looking after their proprietary channels first and foremost, but we don’t have similar issues. When the GFC happened, some brokers felt they needed to put customers with a big lender, in case something went wrong in the future - the flight to quality you might call it – but we have gradually seen a gradual unwinding of that trend, and would like to think that will continue. Some of our funding comes from Australia’s third largest and sixth largest banks, which should be right up there when quality or size is a consideration. I guess some of us in our sector think we are sometimes a bit misunderstood by brokers that only use the big four.
MPA: What is your view on the future of mortgage brokers? Does the mortgage broking proposition hold strong, or does anything need to change?
MC: The proposition definitely holds up. I have long said that broker market share will probably increase as time goes by, and perhaps in the past we couldn’t quite understand why America and the UK markets had higher broker penetration than Australia did. Since the broker channel has recently hit 50% market share, I see no reason why it can’t get as high as 60%. I think the strength of the channel is the independent advice and choice brokers give their customers. I think the future is very bright as long as this remains the focus.
A prime target
MPA: Do you intend to remain focused on brokers in terms of distribution?
MC: We have no intention to change our distribution model. We think that, for us, broker distribution is a better model, because our management team is a firm believer in doing one thing and doing it very well; you focus on that one thing, and continue trying to improve what you are offering. If you try and be too many things, you can spread yourself too thin, and you will only end up half good at a number of things. And you don’t get much growth that way. Our primary focus is on providing knowledge, products, and support only to our broker partners; supplying them with the best tools to allow them to provide the best overall solution for their customers is critical. This is why BMM focuses heavily on education and our technology platform, as these both allow us to deliver on these outcomes.
MPA: Are there any plans or developments in the works for the coming year?
MC: We will continue to innovate and improve everything we are doing, and keep reviewing and enhancing. There is no one big thing we are looking to do - it is more of a gradual improvement as time goes by. In the last twelve months, we have brought on board some additional aggregators – Allco and Loan Market among them – and we think that is further endorsement of what we are doing; we are not just saying we have got something different, but demonstrating that we have something different, that isn’t widely available otherwise.
MPA: You also do prime lending – is growth in the prime market a target?
MC: We would like to grow our prime book. Prime full doc loans tend to last – on average – longer than some of the alt doc or specialist loans. In terms of alt doc or specialist loans, a percentage of them are always going to be reasonably short term – between 12 to 24 months - and then others will probably be longer term – more like five years or longer. Prime full doc loans on the other hand tend to be medium to longer-term. So we are working on innovations with our funders to see what we can do to keep our customers on board longer term – which is a challenge. Because we don’t have market leading products in those areas at the moment, where we do lead the market is where we have been advertising. So we will continue in the short-term to promote our business where we have competitive advantages, and as we develop the relationships with brokers, we’ll look to see if they can utilise our other products, which some of the brokers who have been with us longer term do use and continue to use.
MPA: What’s been the key to surviving the GFC from a BMM perspective?
MC: We have been flexible enough to adapt to the changing environment, and because of our solid fundamentals - great service, and being open on honest - our customers, broker partners, and funders have stuck with us during those changing times.
MPA: On a personal note, what has kept you going strong at the helm of BMM?
MC: Red wine! That, and a sense of accomplishment, the challenge of doing something that makes a difference in the marketplace, and seeing constant improvement “on the journey”. Partnering with key stakeholders such as our broker partners and our wholesale funders has also meant that I’ve formed many great business – and personal – friendships.
Murray Cowan is one individual very well known to the broker channel, having been involved in it at Citibank since the lender initially pioneered partnerships with third party distributors many years ago. Fast forward to 2014, and Cowan has only just successfully steered Better Mortgage Management to its second consecutive year as the highest rated lender in MPA’s Brokers on Non-banks Survey. MPA sat down with Cowan to ask him for his views on BMM’s future, non-bank competition, and the evolving role of brokers.
MPA: Better Mortgage Management has been rated by brokers as non-bank of the year for the second year running. What was your initial reaction to the news?
Murray Cowan: Our first reaction was ‘Oh, wow!’ We are humbled and proud of the result. At BMM we are proud of our business, and we are very humbled by all the support from our broker partners who voted in the survey. It’s also very rewarding to see that all of the hard work the whole team has done over the past twelve months has been recognised! We had been talking about it a little bit here at BMM, and thought perhaps some of the brokers may have marked us a bit harder the second time around. Like in life, you can achieve things once and it may seem like good luck or a one-off, so to back it up the following year is substantial.
Proudly 'old school'
MPA: What do you think Better Mortgage Management does best?
MC: Our strength is the way in which we individually assess each transaction and leverage off our wealth of technical and industry expertise to assist our broker partners in finding solutions for their customers. We have an excellent cross-section of employees here that do a great job, and we proudly call ourselves ‘old school’. Most of the lending we do is not credit scored unless it is a loan that requires mortgage insurance, and our brokers enjoy that ability to be able to talk a transaction through with our BDMs or with the credit team.
MPA: Is there anything in particular that BMM has achieved or rolled out in the past year or so that you feel has contributed to your results?
MC: We focus on brokers - we don’t have any other distribution channels. Certainly, the banks have multiple distribution channels, and some of the other non-bank lenders might have other channels as well, whereas we just have the one channel - brokers. So I believe that always ensuring we are focussed on helping our broker partners, being clear about what we do, establishing true points of differentiation and demonstrating them is an initiative in itself. Now, brokers sometimes say, ‘all you mortgage managers are the same, because you have all got the same funders’. But we have gone out of our way to negotiate a differentiated product offering, and that allows us to do things that are different - that has definitely helped open doors and get into meetings and get the conversations and relationships started. To us, there is little doubt that product innovations like our Capital Specialise range and more recently the launch of our Flexi Ultimate product have earned us merit points in the eyes of brokers. We also still have to back it up with good service and looking after the people we work with.
MPA: Do you think that mortgage managers and non-banks can significantly grow market share in today’s market?
MC: There’s no hiding the stats. Looking at the pre-GFC market, the big four banks and their subsidiaries made up 65% of new lending volumes. Now that number is more like 85%. So we aren’t writing the same level of business as we were pre-GFC. But compared to those days, we’ve re-shaped the business and focused again on going forwards. I think it’s a case of understanding what you do well and articulating that well in the market. We are now hearing news of improved funding and competitive rates for our wholesale funding partners, and we are hopeful that things like the current Financial System Inquiry could lead to some good outcomes and help us to get back to being as competitive as we were seven years ago.
MPA: So you see some cause for optimism given the Financial System Inquiry? Is there anything in particular you are hoping to come out of that?
MC: In terms of the prospects for growth in the non-bank lending sector, some might look at us and say we are eternal optimists. But I think certainly with the FSI, there has been quite a few mentions of the need for growth in competition, and it’s interesting to note that in quite a few different areas now it has been acknowledged that non-bank lenders were the drivers of competition, by driving rates down and reducing the margins of the big banks in the 90’s. Due to the GFC and the banks benefitting from Federal Government guarantees on both deposits and the big banks’ borrowings, it has undone some of that position, and it seems as if there is some sort of acknowledgement now that the big four banks have been “over supported” and of a need to level the playing field. It is interesting to note that Adelaide Bank - which is one of our funders - are party to that suggestion, and so we would like to think they can gain some benefits that could be passed on in their funding and offering to us down the line. The MFAA has promoted following the Canadian model as a way forward, and if Australia could get half way to where Canada is in terms of competition, it would be a reasonable position for non-banks and it wouldn’t put a strain on Australia’s balance sheet.
MPA: Why should brokers consider using BMM and other non-bank lenders?
MC: Brokers should consider non-bank lenders that specialise in the broker market only - who don’t have any channel conflict - as the ‘natural partner’ of mortgage brokers. We have similar backgrounds and history as that of the brokers, and going forward a similar objective. Lenders with other distribution channels have the issue of channel conflict and looking after their proprietary channels first and foremost, but we don’t have similar issues. When the GFC happened, some brokers felt they needed to put customers with a big lender, in case something went wrong in the future - the flight to quality you might call it – but we have gradually seen a gradual unwinding of that trend, and would like to think that will continue. Some of our funding comes from Australia’s third largest and sixth largest banks, which should be right up there when quality or size is a consideration. I guess some of us in our sector think we are sometimes a bit misunderstood by brokers that only use the big four.
MPA: What is your view on the future of mortgage brokers? Does the mortgage broking proposition hold strong, or does anything need to change?
MC: The proposition definitely holds up. I have long said that broker market share will probably increase as time goes by, and perhaps in the past we couldn’t quite understand why America and the UK markets had higher broker penetration than Australia did. Since the broker channel has recently hit 50% market share, I see no reason why it can’t get as high as 60%. I think the strength of the channel is the independent advice and choice brokers give their customers. I think the future is very bright as long as this remains the focus.
A prime target
MPA: Is there anything BMM can do better, or you are trying to improve on?
MC: A lot of our brokers do a lot of deals that fall ‘outside the square’ –what we call ‘alt doc’ or ‘specialist lending’. But what we could definitely do better is make it more widely known that we actually have the same sort of service and expertise in doing prime full doc loans. We hear that some brokers are just pigeon holing us in that alternative category, but we have a lot of good solutions - 50% of our volumes month-in and month-out are prime full doc loans. A lot of brokers that have been with us longer term know that, but some of the brokers that have used us less frequently are maybe just starting to learn some of that.
MPA: Do you intend to remain focused on brokers in terms of distribution?
MC: We have no intention to change our distribution model. We think that, for us, broker distribution is a better model, because our management team is a firm believer in doing one thing and doing it very well; you focus on that one thing, and continue trying to improve what you are offering. If you try and be too many things, you can spread yourself too thin, and you will only end up half good at a number of things. And you don’t get much growth that way. Our primary focus is on providing knowledge, products, and support only to our broker partners; supplying them with the best tools to allow them to provide the best overall solution for their customers is critical. This is why BMM focuses heavily on education and our technology platform, as these both allow us to deliver on these outcomes.
MPA: Are there any plans or developments in the works for the coming year?
MC: We will continue to innovate and improve everything we are doing, and keep reviewing and enhancing. There is no one big thing we are looking to do - it is more of a gradual improvement as time goes by. In the last twelve months, we have brought on board some additional aggregators – Allco and Loan Market among them – and we think that is further endorsement of what we are doing; we are not just saying we have got something different, but demonstrating that we have something different, that isn’t widely available otherwise.
MPA: You also do prime lending – is growth in the prime market a target?
MC: We would like to grow our prime book. Prime full doc loans tend to last – on average – longer than some of the alt doc or specialist loans. In terms of alt doc or specialist loans, a percentage of them are always going to be reasonably short term – between 12 to 24 months - and then others will probably be longer term – more like five years or longer. Prime full doc loans on the other hand tend to be medium to longer-term. So we are working on innovations with our funders to see what we can do to keep our customers on board longer term – which is a challenge. Because we don’t have market leading products in those areas at the moment, where we do lead the market is where we have been advertising. So we will continue in the short-term to promote our business where we have competitive advantages, and as we develop the relationships with brokers, we’ll look to see if they can utilise our other products, which some of the brokers who have been with us longer term do use and continue to use.
MPA: What’s been the key to surviving the GFC from a BMM perspective?
MC: We have been flexible enough to adapt to the changing environment, and because of our solid fundamentals - great service, and being open on honest - our customers, broker partners, and funders have stuck with us during those changing times.
MPA: On a personal note, what has kept you going strong at the helm of BMM?
MC: Red wine! That, and a sense of accomplishment, the challenge of doing something that makes a difference in the marketplace, and seeing constant improvement “on the journey”. Partnering with key stakeholders such as our broker partners and our wholesale funders has also meant that I’ve formed many great business – and personal – friendships.
