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2005 Australian Mortgage Industry Report from JPMorgan and Fujitsu

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If you find reading the whole report dated 2005 daunting, then just read the paragraphs below.

My opinion:

Any Low Doc Loan approved from late 2004 to 2008 were lambs lead to slaughter I was one of them.

Mort 

From Report:

"In comparing the Australian market with overseas, the report made the following observations: 
Costs and fees for consumers in Australia are up to 35 percent higher than in the UK or US
Net spreads on mortgages are significantly higher in Australia than overseas
High returns to participants in the mortgage market make it vulnerable to new entrants
Broker share of originations are as high as 65 percent in the UK and 60 percent in the US
Trailing commissions are not paid to brokers in the UK, US or Canada."

The Paragraph below smack of the start of a feeding frenzy at the zoo, from 2004 it was open season for Brokers with a slowing new housing market is was "let's get the financially secure". I for one am a victim to this 2005. 

"To increase the profitability of broker sourced loans, lenders can renegotiate commission structures to better align broker payments to profit outcomes. Such changes were announced by ANZ and CBA in December 2004 and we expect further changes across the industry, said Mr North.
Banks also need to better segment brokers by profit contribution, allowing them to focus on more profitable customers and incentive's brokers accordingly, said Mr North.
Furthermore, market share data sourced from The Australian Prudential Regulation Authority (APRA) confirms that major banks are losing housing market share to non-bank mortgage providers." 

 

JPMorgan & Fujitsu Launch First Joint Australian Mortgage Industry Report

 

 

 

The Australian mortgage industry is undergoing significant change with major banks losing significant market share to third-party mortgage brokers, which now account for up to 45 percent of new loans and around 30 percent of existing loans industry wide, a new report by JPMorgan and Fujitsu has found. 
The Australian Mortgage Report (Vol 1: March 2005) is a joint venture between JPMorgan and Fujitsu Australia, focusing on recent developments in the Australian mortgage industry, based on Fujitsu Mortgage Market and Yield Improvement Modeling.
Traditionally mortgages were provided by balance-sheet-backed lenders with branch networks. Today, the growth of the broker industry has seen an emergence of players across the value chain, said JPMorgans Chief Banking Analyst, Brian Johnson.
The Australian mortgage industry is undergoing significant change as major banks lose market share to mortgage brokers. Brokers are here to stay and now account for up to 45 percent of new loans, said Mr Johnson. 
The report also found that participants in the Australian mortgage industry need to focus more on profitable growth as a result of declining margins.
The average profit contribution for the broker-originated loans is less than for branch or direct originated loans due to upfront and trailing commissions paid to brokers by lenders, with profit concentrated in specific consumer segments and geographies, said Mr North, Consulting Director of Fujitsu Australia.
The main reason an average broker loan is less profitable is due to shorter loan duration resulting from churn, which is greater in some categories of loans, especially investment and low doc loans, originated through brokers. 
This reflects the fact that broker-originated loans tend to be attractive to price sensitive customers and that some brokers are willing to churn client loans, giving up an ongoing trail for new upfront payments, said Mr North. 
The report addressed two ways in which lenders can improve the profitability of home loans sourced through the broker channel.
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To increase the profitability of broker sourced loans, lenders can renegotiate commission structures to better align broker payments to profit outcomes. Such changes were announced by ANZ and CBA in December 2004 and we expect further changes across the industry, said Mr North.
Banks also need to better segment brokers by profit contribution, allowing them to focus on more profitable customers and incentivise brokers accordingly, said Mr North.
Furthermore, market share data sourced from The Australian Prudential Regulation Authority (APRA) confirms that major banks are losing housing market share to non-bank mortgage providers. 
The major banks market share has been picked up largely by non-bank mortgage originators and we expect this to continue, particularly with General Electric/Wizard and HBoS/BankWest emerging as major players in the industry, said Mr Johnson.
Among the major banks, CBA is regaining market share in housing loans at the expense of NAB and WBC. This increases the likelihood of price based initiatives to win market share. said Mr Johnson.
The report also expects broker consolidation to accelerate.
Despite the highly fragmented nature of the industry and the large number of independents, we see the third-party broker market dominated by six main players AFG, Mortgage Choice, Plan, Aussie Home Loans, Mortgage Find and Mortgage Force, said Mr North.
Changes in commission structures, increased scale advantages for larger players, the introduction of greater regulatory oversight and a slowing housing market are likely to impact the profitability of the smaller players and lead to consolidation, which in turn will see the market strength of the major brokers increase, said Mr North.
In comparing the Australian market with overseas, the report made the following observations: 
Costs and fees for consumers in Australia are up to 35 percent higher than in the UK or US
Net spreads on mortgages are significantly higher in Australia than overseas
High returns to participants in the mortgage market make it vulnerable to new entrants
Broker share of originations are as high as 65 percent in the UK and 60 percent in the US
Trailing commissions are not paid to brokers in the UK, US or Canada.
A candid interview with John Symond, Managing Director of Aussie Home Loans is also included in the report.

/3.
About JPMorgan: JPMorgan Chase & Co. is a leading global financial services firm with assets of $1.1 trillion and operations in more than 50 countries. The firm is a leader in investment banking, financial services for consumers and businesses, financial transaction processing, asset and wealth management, and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase has its corporate headquarters in New York and its U.S. retail financial services and commercial banking headquarters in Chicago. Under the JPMorgan, Chase and Bank One brands, the firm serves millions of consumers in the United States and many of the worlds most prominent corporate, institutional and government clients. Information about JPMorgan is available on the Internet at www.jpmorgan.com.
About Fujitsu: Fujitsu Limited is a leading provider of customer-focused IT and communications solutions for the global marketplace. Pace-setting technologies, highly reliable computing and communications platforms, and a worldwide corps of systems and services experts uniquely position Fujitsu to deliver comprehensive solutions that open up infinite possibilities for its customers' success. Headquartered in Tokyo, Fujitsu Limited (TSE:6702) reported consolidated revenues of 4.7 trillion yen (US$45 billion) for the fiscal year ended March 31, 2004. For more information visit http://www.fujitsu.com/
Fujitsu Australia is a full service provider of information technology and communications solutions. Throughout Australia and New Zealand Fujitsu partners with customers to consult, design, build, operate and support business solutions. From strategic consulting to application and infrastructure solutions and services, Fujitsu has earned a reputation as the single supplier of choice for leading corporate and government organisations. For more information visit au.fujitsu.com.
For further information please contact:
Eugenie Perks, Media & Communications
JP Morgan
T: 02 9220 3125
Gillian Lamrock
Corporate Communications
Fujitsu Australia
T: 02 9776 4799
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