AFG successfully completes inaugural $500 million Non-Conforming RMBS issue

AFG Head office

Australian Finance Group Ltd’s (ASX: AFG) wholly-owned subsidiary AFG Securities Pty Ltd (“AFG Securities”) has successfully priced its inaugural non-conforming Residential Mortgage Backed Securities (“RMBS”) transaction.

The AFG 2020-1NC Trust $500 million issue is AFG Securities tenth issue since 2013, taking the total paper issued to the market by AFG Securities to $4.075 billion.

This being the first issue under its non-conforming program, the portfolio includes low-documentation and non-conforming loans originated by AFG Securities.

AFG Chief Executive Officer David Bailey highlighted the support received for the transaction from domestic and international investors. “We are very pleased to be able to upsize the transaction from $350 million to $500 million due to strong interest from both new and returning investors.”

“100% broker introduced, AFG Securities’ loans have always performed well and have consistently tracked well below the Standard & Poor’s Performance Index (SPIN),” said Mr Bailey. “Our underwriting standards, arrears-management processes and policies as well as our low historical arrears and loss performance, have informed the support of the transaction.”

Details of the notes are as follows:

Class Expected Rating S&P / Fitch A$M Amount Credit Enhancement (%) WAL (years) Benchmark + Margin
A1-S AAA(sf) / AAAsf 137.000 27.50% 0.7 1M BBSW + 0.90%
A1-L AAA(sf) / AAAsf 225.500 27.50% 3.1 1M BBSW + 1.55%
A2 AAA(sf) / AAAsf 92.750 8.95% 4.3 1M BBSW + 1.80%
B AA(sf) / NR 20.250 4.90% 4.3 1M BBSW + 2.65%
C A(sf) / NR 9.750 2.95% 4.3 1M BBSW + 3.65%
D BBB(sf) / NR 6.000 1.75% 4.3 1M BBSW + 4.70%
E BB+(sf) / NR 3.750 1.00% 3.8 1M BBSW + 7.85%
F NR / NR 5.000 5.1 Undisclosed
Z NR / NR Undisclosed

National Australia Bank Limited was the Arranger on the transaction and acted together with Commonwealth Bank Australia as Joint-lead Manager.

-ends-

AFG Securities introduces new, fairer clawback structure

AFG Head office

AFG’s in-house lending division AFG Securities has today announced a fundamental change to its clawback structure that further enhances compliance and fairness for AFG’s 2,975 brokers.

AFG Securities is the funder behind the AFG Retro and AFG Link products.

AFG Securities’ General Manager Damian Percy explained the new structure and how the company arrived at the decision.

“AFG Securities has been looking to find a fairer clawback model that better balances the interests of brokers and lenders for some time. Lenders will assert that upfront commissions should reflect the value that the broker delivers and must necessarily recognise that a loan that only lasts a year or two is, at best, a break-even proposition for the lender.

“In contrast, brokers can reasonably argue that the arbitrary clawback ‘cliffs’ that exist today simply don’t reflect the fact that as time goes on the lender’s position improves.

“And there’s the reasonable question as to whether the prevailing structure is supportive of what the new mortgage broker best interests duty is seeking to achieve.”

To strike a balance AFG Securities has established a model based upon three core principles:

  1. The current clawback ‘cliffs’ are arbitrary and need to change;
  2. Lenders recover their costs over time and that clawbacks should diminish proportionately in the same way; and
  3. There still should be recognition that a loan that discharges very shortly after settlement was arguably a poor transaction for all concerned.

The new structure features a 100% clawback for the first three months, followed by a monthly, proportionate step-down for the remaining 21 months.

Percy further noted that although no clawback regime is perfect, AFG Securities believes it is meeting both an appropriate and fair balance. “The step-down approach is, we believe, simple, reasonable and supports our brokers to meet their best interests duty. “I hope other lenders will, in due course, recognise that the industry’s approach today needs work and follow suit,” he concluded.

The new clawback arrangements will apply to all AFG Retro and AFG Link loans settled from 15th September 2020.

-ends-

Australian Finance Group Ltd annual results

AFG Head office

Australian Finance Group Ltd (ASX: AFG) today announces the delivery of a very successful full year operating result driven by growth in every division of the company.

AFG reports net profit after tax of $38.1 million for the full year to 30 June 2020, a 15.3% increase year on year. AFG CEO David Bailey said the company has proven its resilience during a time of extraordinary upheaval in the economy to report its best financial result to date.

Whilst very pleased with the overall performance for the year, the full scale of the likely future disruption to both the residential and commercial lending markets is very difficult to predict and we suspect not yet fully realised. The Company notes some reservations as to the year ahead. “Our business model generates strong cash flow and is supported by a trail book that will generate cash flows which are actuarily reliable. AFG’s business model continues to be capital light; however, we maintain a cautious outlook.

FY20 highlights include:
  • NPAT of $38.1 million (up 15.3% on FY19)
  • Underlying NPAT of $36.3 million (up 27% on FY19)
  • Residential settlements of $34.1 billion (growth of 8.9% on FY19)
  • Combined residential and commercial loan book of $163 billion (up 5% on FY19)
  • AFG Securities loan book $2.91 billion (up 41.3% on FY19)
  • AFG Home Loans book $10.5 billion (up 14% on FY19)
  • AFG Business settlements $346 million (up 167% on FY19)
  • Final dividend of 4.7c per share fully franked

“All divisions of the company have delivered growth and overall lodgements are up 22% year on year. We experienced growth in every state,” he said. “Our combined residential and commercial loan book is sitting at $163 billion, supported by 2,975 brokers accessing over 55 lenders on our panel.

As previously reported, the company experienced a significant increase in lodgements as it navigated the initial impacts of the COVID-19 pandemic in the last quarter of the 2020 financial year. Moving into the first quarter of FY2021, lodgement activity remains robust, representing an increase of 28% on July 2019 and 35% two years earlier.

“As we head into the new financial year the residential business is well placed to reap the initial financial benefit of this increased lodgement activity however uncertainty remains around the broader impact on the Australian economy for the balance of the new financial year.

AFG Securities continued to be a strong contributor with the loan book growing to $2.91 billion generating a Net Interest Margin of 157 bps. The AFG Securities business contributed 29% of overall gross margin generated by the company.

“The AFG Business platform recorded pleasing growth, with settlements up 167% from $130 million in FY19 to $346 million in FY20” he said. The platform offers an extensive commercial product range and lender choice for customers. There are now 29 lenders on the AFG Business panel, including all four major banks.

Dividend

The AFG Board is very pleased to declare a final dividend payment of 4.7 cents per share for those shareholders on record at 10 September 2020. The dividend will be fully franked and paid on 29 September 2020. This payment, in addition to the interim dividend of 5.4 cents declared on 21 February 2020, represents a dividend yield of 6% over the past 12 months.

AFG Securities

The AFG Securities business has enjoyed a very successful year in terms of responsible book growth and improvement in funding mix. The dislocation in the funding markets necessitated a cautious approach to lending for a period and the equity raise conducted in May 2020 will ensure this part of our business continues from a position of strength. The business has now returned to a more normal footing with new originations beginning to grow once more.

“Pleasingly, there has been a meaningful reduction in the number of AFG Securities customers requesting a repayment pause due to the pandemic with the number of loans in a full hardship arrangement reducing from 4.98% in May to 2.03% this month,” said Mr Bailey.

“The strength of the overall AFG Securities book remains of a high standard and importantly on the back of our historic strong underwriting discipline and arrears history, our hardship numbers appear to be tracking lower than those communicated to the market by other lenders.

At the end of July there was further validation of the AFG Securities business when the company priced its largest term transaction to date by completing a $700 million Residential Mortgage Backed Securities (RMBS) issue. “A significant proportion of the funding of our book is now locked in for periods greater than 364 days. Our portfolio, 100% broker introduced, has a track record of outstanding performance and we were very pleased to see both new and return investor participation.

AFG merger with Connective

In June, the Australian Competition and Consumer Commission (ACCC) granted merger clearance to AFG and Connective Group Pty Ltd. As noted previously, the transaction is also subject to court approval (a non-customary condition). This process is currently awaiting the court’s decision.

Equity raise

In the final quarter of FY20, AFG successfully completed a $60 million equity raising to support the growth of the AFG Securities business, accelerate the investment in our technology and to allow the company to continue to explore strategic opportunities to further diversify earnings.

“As largely an entitlement issue to existing shareholders, the equity raise was very well received by the market and has ensured AFG is well placed and well capitalised to maintain the momentum behind our business,” he said.

The market

“Choice and competition are vital to an effective lending market. The major lenders have been aggressively competing for business and AFG brokers have been serving their customers by ensuring they are provided with the benefits of that competition,” said Mr Bailey.

“Additionally, banks closing branches and redirecting staff to assist with hardships has meant our brokers have been dealing with a substantial influx of customers looking to refinance their loans to take advantage of record low interest rates and competitive offers from lenders.

The reach the broker distribution channel provides to lenders and customers is vitally important. Limited access to branches and the constraints on movement have brought forward the move to digital transactions. “AFG’s investment in technology ensured our brokers were well positioned to rapidly adapt to this change and were able to continue to assist their customers through the lockdown.

Looking ahead

“The AFG Board and executive team are cognisant that while FY21 currently sees AFG performing ahead of expectation, the ongoing impact of COVID-19 on the community and on future residential market lending fundamentals mean that despite the company’s strength we remain concerned about the outlook for the property and mortgage markets. It is difficult on any reasonable basis to confidently predict future financial performance. In line with previous years, the company will not provide any guidance on future performance.

“As evidenced by our most recent AFG Index, the pipeline of business currently remains strong and various federal and state government incentives have played an important role in stimulating lending activity.

“There remain uncertainties as the country grapples with a way through the current health and economic challenges. With rising unemployment there is an expectation that some additional borrowers may enter hardship as government fiscal support programs and loan relief measures come to an end, or in the event that lockdowns are extended in Victoria or revisited in other parts of the country.

“We retain a cautious outlook of what may lay ahead however we remain confident that AFG’s business model and balance sheet strength places it in a solid position to respond to the challenges that the next twelve months will undoubtedly present.”

-ends-

Analyst briefing

An investor presentation and Q&A session to discuss AFG’s annual results will be held at 10am AEST

 

The release of this announcement was authorised by the AFG Board of Directors

Australian Finance Group completes $700 million RMBS issue

AFG Head office

Australian Finance Group Ltd (ASX: AFG) has successfully priced its largest transaction to date, completing a $700 million AFG 2020-1 Trust Residential Mortgage Backed Securities (RMBS) issue.

AFG Chief Executive Officer David Bailey welcomed the successful transaction at a time of dislocation in the market brought about by the COVID-19 pandemic.

“The strong support we received for the issue is evidence of the depth of the securitized business.

“As both an originator and a distributor of mortgages, our experience informs our lending practices. Disciplined lending criteria and active management of the portfolio has meant we are in a fortunate position to take our paper to market.

“Our portfolio, 100% broker introduced, has a track record of outstanding performance and we are very pleased to see both new and return investor participation.

“The support from both domestic and international investors has allowed the deal to upsize from $350 million to $700 million.

“On behalf of AFG, I would like to express my thanks to our investors for their support. Support that has enabled the company to issue $3.575 billion of paper into the market over the past seven years.

The $700 million AFG 2020-1 Trust RMBS transaction settles on Thursday 30th July. Details are as follows:

-ends-

Brokers called upon as market moves

Street Scape

(ASX:AFG) The AFG Index released today shows the role of broker has never been better illustrated than over the past few months. The dislocation to the economy and the lives of hundreds of thousands of Australian mortgage holders brought about by the COVID-19 pandemic has meant AFG brokers have been a reliable and important avenue for customers seeking assistance to navigate these uncertain times.

AFG CEO David Bailey explained the results. “This quarter saw AFG record its largest quarterly lodgement result at almost $17 billion. This is a 30% increase on the same time last year.

Breaking down the numbers by state, a comparison to Q4 19 is as follows:

State 12 Month Increase
NSW +36%
QLD +34%
SA +21%
VIC +23%
WA +34%
NT +36%

“Banks closing branches and redirecting these resources towards dealing with hardship cases has meant that brokers have been spending considerable time working through the options for those clients who have taken the opportunity to examine their circumstances and make changes to their financial arrangements.

Given these unusual times, AFG has again elected to disclose additional month by month data.

Month Lodge # Lodge Vol Avg Loan Inv % First Home Buyers % Refinance % Upgrader % Interest Only % Principal & Interest %
Apr-20 9,405 $5,217,890,839 $554,800 26% 12% 38% 36% 17% 83%
May-20 11,269 $6,127,419,783 $543,741 26% 14% 36% 36% 16% 84%
Jun-20 10,406 $5,564,824,672 $534,771 22% 21% 23% 42% 14% 86%

“It has been very interesting to see where some of the mortgage activity has come from. Ending the previous quarter, refinancing activity was extremely strong. As some of the refinance incentives from the majors wound down, the market responded in a different manner with a flurry of activity for first home buyers aided by the various government incentives, and an increase in upgraders from those more confident in their financial position.

“Brokers assisting customers to find savings on their home mortgage repayments has seen refinancing activity on a rollercoaster. From 32% in the December quarter refinancing is now sitting at 23% however monthly data shows significant movement during the height of the pandemic, with refinancing activity rising to 38% in April as brokers helped borrowers shore up their positions.

“Supported by federal and state government stimulus packages, First Home Buyers have seized their opportunity to enter the market. First Home Buyer numbers surged to 21% in June, up from 12% in April. In fact, the federal government’s First Home Loan Deposit Scheme saw the largest amount of applications for guaranteed loans, 45%, were made through the broader mortgage broking channel.

Upgraders increased from 36% at the beginning of the quarter to 42% in June.

“Across the past few months, we have witnessed a significant shift in mix of business towards the country’s major lenders. The major banks have used their balance sheet strength to take back market share from the non-major lenders. Once again, it is worth examining the monthly activity for the full picture of movement in the market across the quarter.

Apr-20 May-20 Jun-20
ANZ 28.45% 36.87% 10.16%
CBA 15.21% 17.11% 23.66%
Bankwest 3.75% 4.12% 6.05%
NAB 11.10% 4.48% 7.71%
Westpac 6.93% 4.30% 6.27%
BOM 1.57% 1.05% 2.33%
Bank SA 0.39% 0.27% 0.41%
St George Bank 2.62% 1.93% 3.37%
Major Total 70.01% 70.13% 59.96%

“After peaking at around 70% in the quarter – which is the highest level since 2017 – the flows of business to the major lenders settled back down to 60% in the month of June.

“ANZ was the big winner among the majors, from 9.92% market share last quarter, rising as high as 36.87% in May driven by cash back offers and low fixed rate products. They increased their market share of fixed rate products to 33.66%.

“CBA benefitted from their consistency of service and back office efficiency to reap the reward with their share of the market rising from 14.7% last quarter to 23.66% by the end of June.

Market share of the Westpac group suffered due to a blow-out in turnaround times as they slipped from 20.14% at the close of Q3 to 12.38% at the end of June.

“Extremely competitive offers from the major lenders including cash incentives of up to $4,000 led to a drop in market share for the non-majors. However, processing bottlenecks began to impact turnaround times for the majors by the close of the quarter and the non-majors have begun to take back some ground.

“The role the broker continues to play during this COVID crisis by assisting their clients in making considered choices around their individual home loan circumstances should not be underestimated.

As the pandemic took hold the country’s lenders have responded rapidly to borrowers and have deferred or altered loan arrangements to help homeowners having difficulty meeting repayments.

“AFG Home Loans is no exception. Whilst not reported in the AFG Index, it is pleasing to note that the securitized lending business of AFG has seen the number of customers accessing assistance with the deferral of their repayments decrease from 4.98% in May to 4.34% at the close of the quarter. The number of customers choosing to cease the capitalization of unpaid interest onto their existing home loan by switching to Interest Only payments has slightly increased from 4.30% in May to 4.38%.

“At this time of dislocation in the market mortgage brokers continue to assist their clients by securing better interest rates, fostering competition, and, as evidenced by the lift in numbers, enabling first home buyers to access the market more efficiently with a higher level of certainty.”

Download full report here

AFG appoints industry advocate to NSW team

AFG Head office

AFG has strengthened its broker support team with the appointment Haley Bellamy in New South Wales. Haley joins the Partnership Manager team after working for the Institute of Strategic Management. Prior to that Haley was a highly successful mortgage broker and part of the leadership team at one of AFG’s leading groups, Smartmove.

Head of Sales & Distribution Chris Slater said he was delighted to add such an experienced business builder to the AFG team.

“Haley is extremely talented and brings a wealth of leadership, broker and support team development & lending experience to the team and is well known and highly respected by our lenders and industry partners.

“She worked her way to be one of our top performing brokers in NSW, won the AFG Women in Business Scholarship, is a previous MPA top 100 broker and has been a judge on the panel for the Australian Mortgage Awards.

Haley said she was thrilled to be working with AFG’s brokers. “It’s exciting being able to give back to the industry that has given me so much,” she said. “I look forward to supporting my brokers to deliver exceptional outcomes for their clients through AFG’s industry leading technology, tailored business coaching, training, marketing, events and support.

“The leadership team at AFG and my colleagues are world class and I am proud to be part of an organisation that is so focussed on delivering to its members through innovation and empowerment.

“To join the team in what has been such a challenging time for our members and their clients has only highlighted AFG’s agility and commitment to support its members, doing whatever it takes at every turn,” she concluded.

-ends-

AFG expands commercial lender panel

AFG Head office

AFG has further enhanced its commercial lender panel with the appointment of asset lender Australian Secure Capital Fund (ASCF) today.

Offering fast access to capital ASCF has a suite of private lending first and second mortgage loans together with a unique offering of SMSF and non-resident products. Their short-term loan products can assist business operators with a range of requirements including working capital, a commercial property purchase or to fund vehicles, plant or equipment.

AFG Head of Sales & Distribution Chris Slater welcomed ASCF to the panel. “The expansion of our commercial panel continues at a rapid pace and delivers on our commitment to providing more solutions for our brokers and their customers.

“The addition of ASCF means more diversity is available to our brokers to help them support Australian SME business operators at a time when they really need it.”

Commenting on the appointment to AFG’s lender panel, ASCF CEO Richard Taylor said: “Partnering with a mortgage aggregator like AFG shows the direction that private lending is heading. We look forward to working with AFG and their brokers to provide them with funding solutions.”

ASCF products are available to all AFG brokers experienced in commercial finance or residential brokers who have completed the AFG Business training pathway.

-ends-

HomeBuilder Program

Homebuilder

If you have been thinking about building a new home or carrying out an extension or renovation, now might be the time to meet with an AFG broker and work through your options.

The Federal Government’s new $680 million HomeBuilder program announced on 4 June 2020 makes available $25,000 grants to help build or substantially renovate your home.

How does the HomeBuilder program work?*

  • The scheme is only available for contracts signed between 4 June 2020 and 31 December 2020
  • Construction must commence within three months of the contract date
  • It is means-tested
  • Only available for principal place of residence
  • Limitations on the kinds of renovations (sorry, no tennis courts) and subject to a total value cap

If you’re a first home buyer, there are a range of first home buyer and state government grants, stamp duty concessions, and rebates as well as the federal First Home Loan Deposit Scheme and First Home Super Saver Scheme that are available and work in conjunction with the HomeBuilder grant.

Our brokers are here to help.

Still have questions?

Contact your AFG broker for more information or get in touch and we’ll have a broker in your area contact you.

* The information provided on the HomeBuilder program is a selection of information taken from Australian Government sources and is current as at the date of this post. It does not contain all information that may be relevant to you.

Specialty asset finance lender joins AFG panel

AFG Head office

AFG has expanded its panel with the addition of specialty asset finance lender Australian Motorcycle & Marine Finance (AMMF) to the AFG Business platform.

AFG Head of Sales & Distribution Chris Slater announced the addition in a message to brokers this week. “When a client looks to their broker for finance, they are looking for options. When a broker chooses an aggregator, they expect their aggregator to offer a lender panel that responds to customer needs and provides those options.”

“The addition of AMMF’s commercial products to the AFG Business platform delivers on that commitment,” he said.

AMMF has a broad range of asset finance options to meet customer needs. “As Australian small businesses come out of COVID-19 imposed hibernation, access to competitive finance is vital to assist them to get back on the road to recovery.”

“Some of the assets AMMF will fund include motorbikes; bike and boat trailers; all-terrain vehicles; power products such as ride-on mowers and generators, and marine pleasure craft. They also fund commercial marine equipment including engines as stand alone.”

Commenting on the announcement Marty Bear, AMMF National Manager Australia and New Zealand – Broker, said: “AMMF is a specialist lender for leisure goods in both the Commercial and

Consumer markets. We are really pleased to be welcomed on to the AFG panel and look forward to working closely with such a great aggregator as AFG and its broker network.”

“The AFG Business platform takes the legwork out of commercial lending by matching transactions and customers to a lender’s credit requirements,” said Chris. “We are very pleased to welcome AMMF to the AFGB Platform and their consumer products to the AFG Asset Finance panel.”

AMMF products are available to AFG brokers from today.

-ends-

AFG training and events pivot during COVID-19

AFG Head office

As the COVID-19 crisis began to unfold, AFG’s Learning and Development (L&D) and Events programs switched direction to meet the vital learning and development requirements of the AFG broker network.

Supporting brokers with up to date information and ensuring they can maintain their professional development requirements in a virtual world – including attaining CPD points – has been vital, according to AFG Head of Sales and Distribution Chris Slater. “From the moment the crisis hit, we have made sure our focus was on supporting our brokers. They have been at the forefront of the massive financial impacts the pandemic has had, and their customers have needed support through this time.”

“Australia continues to perform an enviable job of flattening the curve, but it is impossible to say when things will return to normal, and indeed elements of what we have experienced since the lockdown commenced may even become our new normal.”

AFG has redesigned its L&D program with a focus on informative, timely and relevant content. “We are seeing exceptional numbers taking advantage of our program, with the strong uptake of our virtual sessions demonstrating how much our brokers appreciate this content during this uncertain period.”

“Since restrictions commenced, we have had more than 10,000 registrations for our myriad of webinars and virtual sessions. Whether it be keeping them up to date with the market, the lenders and what they are offering or support for the shifting circumstances of their customers, we are reacting in real-time to support our brokers and their clients,” said Chris.

Another big focus has been on increasing the volume of professional development courses available to brokers on AFG’s LEARN platform. “We now have 500 courses available to brokers. In April alone, AFG brokers have completed around 12,769 courses and achieved 7146 CPD hours.”

The volume of content posted to AFG’s online broker portal has also risen significantly, with rolling COVID-19 updates on Government, lender, health and wellbeing, industry and AFG policy changes and announcements.

“We quickly developed a dedicated wiki on our HELP portal to assist brokers in finding the right information at the right time. Brokers have moved rapidly to using this as a source of truth during COVID-19 with over 10,000 views in under two months,” he said.

AFG’s adapted L&D and event program includes an interactive Q&A COVID-19 focused weekly webinar, with full access every week to the AFG executive team, lender partners and industry experts, each delivering responsive content to the developing situation together with BAU content.

Recent guests have included:

  • Kate Carnell, Small Business and Family Enterprise Ombudsman, speaking about the ways COVID circumstances have been impacting small business and the Government support available.
  • Real estate leaders John McGrath, Founder and Executive Director of McGrath Real Estate, John Percudani, CEO of Realmark and Andrew McCann, Managing Director of Jellis Craig on the impact of COVID on the Australian residential and commercial property market.
  • Michelle Maynard, Partner of Carbon, speaking about ATO concessions for business, stimulus package options for businesses, cashflow boost payments and details of the Government’s JobKeeper scheme.

“After many requests from non-AFG brokers and industry partners, we have also decided to open these webinars up to the entire industry. Any broker or industry professional can register via our social media pages or our website” said Chris.

“We are also working closely with our lender and industry partners to deliver tailored content via virtual sessions. These have included partner-hosted webinars in both the residential and commercial space, with tailored content focusing on COVID-19 updates and critical BAU information.”

The live webinars are recorded and posted to AFG’s Learning Management System platform for ongoing broker access on demand. In April alone, the team delivered 12 different webinars and virtual sessions with 5706 attendees.

“At a state level our Sales Managers and Partnership Managers are hosting interactive training sessions, forums and virtual coffee meeting programs with smaller groups of local brokers meeting online with their peers and hearing from lender and industry partners as guest presenters,” he said. “We have also redesigned our customary face-to-face lender accreditation sessions to become virtual sessions.”

AFG is currently finalising plans for a lender and industry partner professional development event which will be deployed as a virtual session in coming months.

“During times of extreme change, adjusting the way that we deliver learning and development to support our brokers is of paramount importance,” concluded Chris.

-ends-