Iain Forbes is buzzing when MPA pays him a visit at his new Homebush digs.

That morning it was announced that Challenger Financial Services Group Ltd would splash out more than $300m on three mortgage aggregator firms. Choice Aggregation Services was purchased for $163m, with Challenger also indicating that it would buy the 85% of PLAN that it didn't already own and would take a 19% stake in FAST.

This news was music to Forbes' ears, as AFM was in the enviable position of being added to the panel of all those aggregators within the current financial year. Challenger may well end up being both a lender to AFM and these aggregators.

"We've only gained our position on all of those panels recently, so for them to now be linked with Challenger will open significant opportunities for us," Forbes says.

These sentiments are echoed by Forbes' daughter Tanya White, a fellow director at AFM. She believes consolidation of the mortgage market is a good thing, and that these external factors will provide both opportunities and challenges for AMF.

"I like consolidation, as I think there are too many players in the market," she says. "We have a good relationship with Challenger, but these takeovers should have no bearing on us. As PLAN brought in its own line of products through Challenger, AFM still has a range of products not provided by either company, which means we'll still have a funding role to play."

For AFM, these developments could not have come at a better time. The company has carefully built itself up over the preceding four years to the point where it could take advantage of major market developments.

"We weren't in a position to be on those aggregator panels in 2004/05 when we were still a fledgling business, for as much as we would have liked to be there, we weren't ready and were still in the process of training staff, establishing new markets and developing ourselves," Forbes says.

"This business is all about relationships, and we could have jeopardised existing relationships by trying to move too early."

Friends in need

The trials and tribulations involved in getting AFM off the ground, let alone its growth since, make for interesting reading.

The trio of Forbes - Iain, Tanya White and her husband David White - were all senior managers at Homeloans Ltd before jumping ship and taking the plunge with AFM in May 2003. All three of them resigned on the same day.

White had talked with her husband David and father Forbes about the possibility of starting their own business, and although Forbes was keen, David told MPA he took some convincing about the merits of the idea.

"I'd been at Homeloans for 10 years and initially thought to myself: 'Why would you leave such a good company for the uncertainty of starting up your own business?'" he says. "However, I thought about it further and realised this was an opportunity to do something for myself, with more freedom to make decisions."

Like the three musketeers, they made a pact that it was one in all in, and AFM was launched.

"Back then I never envisaged that AFM would be like it is today," Tanya says. "My expectation was to have a small boutique lending company based in Sydney with a bit of work from Melbourne, doing volumes between $10m-15m a month."

AFM now takes more than $100m a month from its residential and commercial operations, with offices on the Gold Coast, Townsville, Adelaide, Canberra and Perth, in addition to its Sydney and Melbourne presence. It is also on the panel of leading aggregator firms such as Specialist Mortgage, eMoca, The Brokerage, City Pacific, Mortgage Wisdom, FAST, PLAN and Connective.

Basics

Before they was able to pitch for panel positions with large aggregators or clear large volumes of loans, the directors of AFM had to take care of the basic and tedious start-up tasks. The first item on the agenda was to find premises from which to trade.

Luckily for AFM, Forbes had some close friends willing to lend a hand. In particular, a long-standing mate, solicitor George Shad, offered to buy office space for the fledgling business in Bankstown, and then lease it to AFM at what Forbes describes as a "very reasonable rate".

In addition to the Bankstown office, by July 2003 AFM had also entered the Melbourne market, after forming a relationship to buy the loan portfolio of a local mortgage firm, Statewide Home Loans.

They were off and running, but realistic enough to realise that this was a marathon and not a sprint.

"When we first started, I went to a leasing company and asked for $100,000, and they didn't want to know us," Forbes says. "Even though we had excellent personal reputations, we were a new business with no track record, and nobody was willing to lend to us."

David and Tanya decided to sell an investment property that put a few hundred thousand in the kitty, and Forbes also contributed funds, with the realisation that they would have to fund this venture themselves.

"We had working capital to fund our business for two years," Forbes says. "We paid cash for all our equipment and technology systems, and today we sit in the position where leasing companies chase our business."

AFM also had to chase business themselves, and a marketing strategy was developed in order to bring in new suitors.

A public relations specialist was hired, and AFM placed advertisements in local newspapers and trade press. The connections that all three of them had made over the years also meant they had existing links with brokers and lenders.

"We knew that to survive, we had to give this a really good shake," Tanya says. "Brokers wanted to deal with us because of our background and the belief we knew what we were doing."

Tight relationships

Tanya's comment about 'knowing what they were doing' formed the basis behind AFM's strategy. She says they "didn't want to be all things to all people", and they made sure definitive structures were set down to ensure AFM would be a viable long-term entity.

As a mortgage manager, AFM provided services to look after the loan process from application to settlement. It was also decided that AFM would not make direct offers to the public, but would rather work with a network of brokers. By deciding to run the company this way, Forbes and White realised that a successful business, like a happy family, would be one where the lines of communication were open and loyalty was rewarded.

"By linking with aggregator groups, we have access to between $10bn-25bn worth of mortgages a year," Tanya says. "We speak with our brokers and sales staff weekly, and also host luncheons and training sessions to keep them thinking of AFM and to get our message out in the marketplace.

"Our business is very much relationship based."

That focus on relationships, and managing them effectively, is why AFM seeks to grow organically.

"Why spend $5m on purchasing a company with an uncertain portfolio and no control over its product range or churn, when you can grow organically and control the future direction of the business," Forbes says. "The key is to get the growth recipe right, and not spread yourselves too thin."

Since 2003 AFM has grown substantially.
It now has 55 staff nationally, and has expanded into other product areas. In 2005 the company developed a non-conforming suite of products, catering for clients seeking a high loan to value ratio, particularly low deposit first homebuyers and even credit-impaired borrowers.

Homebush bound

By late 2006, AFM's Bankstown premises were no longer big enough, and the company moved to a larger site at Homebush. The growth on the product side also continued, and in July this year the company expanded its operations into the commercial leasing markets.

"For the current financial year, our focus will continue to be on consolidating our links with aggregator groups," Tanya says. "That's a large and ongoing job. You can't say: 'Well, I'm tired this month, I'll let the advertising go.'

"It's a big job and you need to stay on top of it."

In the long term, Tanya and Forbes see major opportunities on the commercial and leasing side, predicting that in five years' time its commercial operations might contribute around 40% of the company's revenue. It also hopes to continue riding the wave of growth of its residential business in Queensland. The Gold Coast office is now the company's highest volume writer, and this financial year it opened a second Queensland office in Townsville.

So even though the business is going well, do they still speak to each other at the end of the day?

"We all have different responsibilities within the business, so that reduces the opportunity for tension," Tanya says. "We all give advice when asked, but also support each other when business decisions are made and still enjoy getting together for family occasions as well."