“Lenders make the loan and lending rules that brokers must follow and in line with the brokers own responsible lending obligations, the vast majority are not intentionally breaking the law and are applying responsible lending considerations to the loans they arrange for borrowers,” White said.
White also dismissed concerns raised by lenders to ASIC that by raising the bar on the information they require brokers to collect from consumers, brokers will shift business to lenders who need less information.
“At all times, brokers have the borrowers best interests at heart while also being aware of the borrowers desires which are not the influencing factor as they are not always in line with responsible lending obligations.”
Out of touch
When APRA and ASIC first expressed concern over the rise in interest-only home loans last year – suggesting this may be representative of a broader trend towards risky lending practices – Ray Weir, director of Finance Solutions WA wrote a letter to both regulators, saying there are many logical and safe reasons as to why a borrower takes out an interest-only loan.
So when Weir heard about the review of the mortgage broking sector in regards to interest-only lending, he told Australian Broker that he has not budged on his position, saying ASIC couldn’t be more wrong.
“As mentioned in my letter, there are several special occasions when owner occupiers want an interest only loan, even if it’s for the first 12-24 months while they sell other property, so they can ultimately make a sizable reduction in their home loan.
“If ASIC think it’s because lenders and brokers recommend interest only payments to reduce the commitment level and help borrowers get a larger loan, they couldn't be more wrong.”
According to Weir, if a borrower requests a standard 30-year loan with the first five years being interest only, then the lender’s serviceability calculator will automatically recalculate the loan repayments as if the loan term is 25 years. But by shortening the effective term in the serviceability calculator to 25 years – and consequently increasing the repayments – the loan amount the applicants can apply for is actually reduced if they insist on an initial interest only period.
“In other words the amount that can be borrowed is less for an interest only loan compared to a principal and interest loan. I bet ASIC don't understand this.
“I've found over the past 29 years as a broker that Government regulators often don't understand such intricacies of the mortgage industry.”
However, while there are many frustrations brokers, White says they should take this an an opportunity to educate.
“This is all about education on both sides but from our end, it is vital we continue showing them how we work and the practices we have in place to eliminate any need for potential restrictive or more stringent regulation.”