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Diversify Your Diversification

Article by: Steve Sampson

In this article Steve shares his insights on how brokers can diversify back in to no and low doc mortgage lending

Mortgage brokers are renowned for their passion and innovation. These two qualities have led brokers to look at ways to improve their business by diversifying their product offering to fill in the income gap left empty by the effects of the Global Financial Crisis (GFC). And so brokers diversified – mainly into insurance - yet I cannot help but think that there is a more logical and complementary product to be embraced in the areas of low and no doc lending.

Return of an industry

When the GFC hit in 2008, “low doc”, “no doc” and “non-conforming” lending went into hibernation when major lenders, particularly banks, fled from this sector in an effort to limit their risk during the GFC, despite low doc lending  being a strong proportion of the mortgage lending market (at the end of 2006 low doc lending formed approximately A$37.9 billion of all lending commitments ).

But most of us acknowledge that the no doc and low doc sectors of the market have largely been ‘lumped in’ and tarnished by  practices of our American counterparts, however  in Australia these aren’t necessarily all “bad” borrowers. Most of these borrowers simply  don’t meet all the stringent requirements of the major lenders and banks for whatever reason.

In the future economy there will be an appreciation of pricing for risk and whilst low and no doc  will be priced as such, it is important to look at the rate as a proportion of the whole loan term. It’s a major driver in helping a client achieve their present goals, eventually leading to the achievement of  their longer term goals. This sector will start to return strongly in the near future, backed by sound practices and transparency.

According to official figures  one in ten Australians are self-employed. Brokers must start to pay more attention to this sector of the lending market, we’re potentially ignoring a healthy 10% of prospective borrowers. Whilst supply shrank in 2008/09 due to lack of product and funding, the appetite for low doc loans continues to, in my opinion, grow. With more borrowers being made redundant from corporate roles, many have taken the opportunity to finally become their own boss – and with housing demand and prices back on the rise, so too will be the demand for low doc loans.

As we sit at the cusp of an economic recovery brokers need to re-focus themselves and their teams on this sector, and quickly, if they are to take advantage of the recovery.

Courtesy of the GFC there will be many prospective borrowers who will be left with “damaged balance sheets”, both personal and corporate. While they have toughed out the GFC, they may have been left tarnished from a tough business year or by experiencing unemployment. It stands to reason that if you are able to identify those that have equity in property and are still standing, a self-certified serviceablity loan may well be a suitable product to get them back in order and assist in achieving their 2010 goals.

A complementary product

As a form of diversification, re-focusing on no and low doc lending is the true, natural progression for brokers. The skills required to adequately service this sector of the market are skills that brokers already possess, the systems that are required usually already in place and the amount of new knowledge required is minimal. Many lenders that specialise in this area should also be willing to provide training for loan writers on low doc and non conforming loans in general.

As a complementary product to your existing offering, marketing and sourcing new clients is also much easier as you harness the power of your existing database and contacts. Your existing database and contacts within the real estate, accounting and financial planning industries are good places to start developing leads for clients who might be self-employed or need help with a no doc loan –  and with your existing relationship it will be much easier to build and capitalise on opportunities that arise.  

Outside of your existing contacts, engagement with your local community at business networking events, marketing to the self employed and making  your presence known as a specialist broker in the self-employed community  who can truly help any client to break into or manage their borrowings, will create massive opportunities.

A sticky client is a sweet client

We all know that a “sticky” client is one that can provide you with more activity, more referrals and more opportunities. Being able to help a client through a situation when other brokers are reticent to assist, is the key to locking them in as a loyal client and that goes for referrers too. If you are able to work with a lender that offers a suite of products from no doc, low doc through to prime, you will then be able to refinance your client into a more suitable product as their circumstances change – giving you a client for life and a lifetime income.

A lender in need, is a friend indeed

Maintaining a strong relationship with a good lender who has a suite of products in this sector will be paramount to completing your journey in diversifying your product offering.

With many of the bigger lenders, banks and even LMI providers all having tightened their criteria and / or usually requiring one year’s worth of Business Activity Statements (BAS), it is becoming increasingly hard to find true no  and low doc products to form a part of your product offering. Not only should a lender be able to support you in terms of training and marketing support, they need to enable you to have genuine no and low doc products so you can effectively meet your clients’ needs.

Grasp this sector with both arms, do your homework and prospecting now and reap the rewards in 2010.


Steve SampsonAuthor Bio:

Steve Sampson is the Group National Lending Manager for Provident Capital, a non-bank lender specialising in the non-conforming, low doc sector. With a range of products and more on the cards for 2010, backed by multiple funding lines, Provident Capital is becoming the non-bank lender of choice for many brokers.



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