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Brokers on notice about verifying living expenses

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Julia Corderoy | 26 Nov 2015, 08:02 AM Agree 0
Brokers should be on notice after senior executives from ASIC said they expect all brokers to verify a consumer’s expenditure with the same scrutiny they verify income
  • Astonished | 26 Nov 2015, 08:53 AM Agree 0
    Are bank staff and credit assessors at the lender also required to do this. Or is it only brokers that are being held to this standard?
  • Regional Broker | 26 Nov 2015, 09:09 AM Agree 0
    Amazing, I usually get the "everyday" bank statements to verify that savings are occurring and I do discuss budgets.

    What ASIC have done without issuing a clear guidance note is to bring in new interpretations of then law!

    We should not be surprised as this has happened before. Time for the MFAA & FBAA to ask ASIC for a very clear guideline!

    Also agree with the comment, are the bank sales staff and credit staff going to be under this apparent ruling as well?
  • Astonished | 26 Nov 2015, 09:09 AM Agree 0
    ASIC are a bunch of misfits. Gadens have made it clear that obtaining bank statements is not necessarily required (see "Responsible lending – consolidated guidance" issued by Gadens 17/11/2014).

    NCCP is a big joke and is penalising the 99% of brokers that have always done the right thing. We live in a complete nanny state. War on terror, war on drugs and now the war on brokers.
  • Paul Modest | 26 Nov 2015, 09:12 AM Agree 0
    I would naturally expect these standards to apply to all consumer lending. When someone purchases household goods on a finance plan or a vehicle I expect the sales person will make detailed inquires as to the persons income and spending habits.

    Also they should consider the appropriateness of the vehicle or appliance based on the socio-demographic profile of the neighbourhood in which the client lives.

    ASIC, the new social conscious of society I'm sure would welcome these changes. Furthermore renters should only be allowed spend a pre-determined amount of money on discretionary items. The balance should be directed towards saving for a home or retirement.
  • Broker | 26 Nov 2015, 09:22 AM Agree 0
    Yes ASIC , another outstanding idea, what a year it has been - well done!

    We must never allow any applicant to think or make a decision for themselves, or to be responsible for their financial management or lack of.

    While I’m at it, I have the applicants empty out their kids money boxes and lift the cushions on their couches so I can take these savings into account too, as I determine their credit worthiness, employment prospects etc. over the next 30 years with my trusty crystal ball.

    Very few applicants have consistent spending patterns on a month to month basis so other than a very brief conversation I don’t bother going into into much further detail.

    13 years as a Broker, zero clients have defaulted or gone into arrears to date, not sure why, ASIC please help me.
  • also astonished | 26 Nov 2015, 09:23 AM Agree 0
    There will also need to be specific guidance regarding what then is a discretionary expense and can be reduced or stopped to better manage a mortgage.

    I am concerned that we are being regulated by those who don't necessarily understand the credit process or real world human behaviour.
  • Marty | 26 Nov 2015, 09:37 AM Agree 0
    Oh please ASIC. Do we as consumers still have any say in the matter? Next they will tell consumers what sort of loans they can take. Ohh wait they already are. Consumers have never had more protection. Enough already.
  • Lets put it in perspective | 26 Nov 2015, 09:48 AM Agree 0
    Lets put the ASIC boss (or one of his kids) in the chair with the broker having the conversation (who of course is already excited having just signed a property contract)... so Mr Customer I have gone through your bank & credit card statements with a fine tooth comb & note that because you spend $xx a week on xxxxx & allowing for extra expenses like council rates & insurances etc... I'm sorry but I don't believe this loan is suitable for you & may put you in financial hardship... Especially if interest rates lift xx% beyond the current 7.4% assessment/serviceability test...

    While clients will give you all the information you ask for, they don't necessarily expect to be given the third degree over their personal spending habits. And lets face it, it's not the essential expenses that are at issue (the HEM mostly takes care of that), it's the discretionary spending, which most people will voluntarily adjust as circumstances change.

    And maybe I am naive, but I have had that tough conversation with a real client... that based on current entrenched living expenses & other commitments I dont believe you should continue with this credit contract & property purchase & suggest that you hold back for a year or so, consolidate your overall position & re-establish cashflow affordability & some savings.....simply to find out that 5mins after the client thanked you for your time (whcih was considerable &that you didnt get paid for) they then went & saw a different Broker who did continue with an application that was subsequently approved & settled.

    I am still of the firm belief that this particular deal should not have gone ahead (I also believe there had to be a degree of application disclosure manipulation) & that in time the security guarantor will regret the support they have given (yes a family guarantee option with $0 savings contributed & worse $0 savings from the word go).

    Now despite my sound preliminary assessment & compliant advice & the positive & friendly conversations & relationship, not to mention my decades of lending experience, at the end of the day, I look like a goose & my ability & credability as a finance Broker is shot to pieces in front of not only this client (& potential referral source) but also the initiating referral source....

    Final Score
    - 0 for the good guys (I think I feel good about the moral high ground)
    - 1 for the cowboy (+the commission!)
  • Ex banker | 26 Nov 2015, 09:53 AM Agree 0
    As an ex-banker I can assure you that there is no requirement for the banks to go into this level of detail. If ASIC demand this from brokers all that will happen is that the consumer will know the path to least resistance is to go direct to the bank as they don't need to supply all this information to them.

    It doesn't matter whether brokers are prepared to spend an extra hour to 'get to know' their consumer, it matters what the consumer is prepared to do if there is not an even playing field. They hate providing the documents that we already need from them never mind, I'm sure they'll be jumping for joy when we ask for documentation to verify all their living expenses.

    Message to ASIC: practice what you preach, you should take a holistic approach to this, if you are concerned about the consumer then you should look at industry wide changes/reforms, document it and not target one part of the equation only.

    You need to be seen to be non-partisan to any participant, unless there really is a hidden agenda here to drive more clients back to banks.
  • SEQ BROKER | 26 Nov 2015, 10:04 AM Agree 0
    Actually lets look at this from a different perspective, um, the borrowers perspective!

    Take the scenario where a borrower asks for and gets a loan which is slightly beyond their means today. Just how long do you think t will be before the borrower is comfortable. Everything goes up with inflation but wait, a mortgage doesn't! Assessment already has the mortgage stressed prior to approval. So what we really want to do is rob the ability for people to make decisions about their expenses in the context of buying a house which in 4 years or so (in most locales) be in a condition where the mortgage is less than rental.

    From a borrowers perspective they couldn't care less about a brokers compliance, they want to get into the market now so they don't waste rent later. How foolish of us to tell them that they can not because they have Foxtel.
  • Craig | 26 Nov 2015, 10:45 AM Agree 0
    If we look at the significant transaction and suspect reporting of cash movements as a guide, there may be times when a hard and fast rule should apply. Family Guarantees with 0% deposit and a poor track record as an example. But for the vast majority of borrowers, the application of this detailed an assessment is way beyond what is needed. The lenders that do specialist lending already take a more thorough approach. When you look at the 'suspicious' transactions, it doesn't have to be above the $10K to spark a referral, it is based on the need to look a little closer. As an experienced broker, I make suitable enquiries about affordability and often this requires people to make lifestyle changes to buy a property. What they have been spending in the past is an indicator but not a certainty of what they will spend in the future. It is not the mortgage that gets most people into trouble, it is irresponsible card and consumer finance. ASIC have a job to do, just don't know where they really should be focusing their efforts. It's like when they banned mortgage exit fees and deferred establishment fees when the cause of most of the complaints was actually fixed rate Early Termination Interest Adjustment. I wish we could have a system where when we meet a client with a history of taking out too much consumer debt, we could get them to put a 'voluntary block' on their credit file for no further advances, unless in consultation with a trusted adviser. Some people need this help, but there is nothing we can do at a mortgage broker level to ensure they are not irresponsibly lent to by card and interest free companies.
  • VicBroker | 26 Nov 2015, 10:51 AM Agree 0
    We do get bank statements and the last credit card statement but honestly I am only looking for undisclosed commitments and making sure they aren't drawing out lots of cash at the casino. Not up to me to calculate how much has been spent on food and shoes! Surely.
  • Common sense broker | 26 Nov 2015, 11:01 AM Agree 0
    I once read that Australians would rather miss out on a meal than miss a mortgage repayment. People can change their spending once they move into their new home. Don't reconnect Foxtel, go casual to the gym; stop taking the baby to day care to have a day out every week; use the new kitchen instead of eating out... This is what we call 'Discretion'. If they have all these expenses AND have been paying rent or another mortgage AND have managed to save, AND have the brains to want their own place to pay off, they look pretty responsible to me!
  • Worried | 26 Nov 2015, 11:07 AM Agree 0
    Some Great Comments here.

    One thing came to mind while reading both the story and comments is who is legally allowed to discuss budgets with clients.

    Banks - No
    Brokers - No
    Accountants - No

    Fin Planners - Yes

    Technically we can still review a clients statements / budget but legally we are not qualified to comment nor are the banks - only a fin planner is qualified to comment. (lets get away from our ability to do this - looking at legislation and qualifications)

    Therefore unless ASIC changes the legislation and then of course adds it to our small list a qualifications, and gives us the ability to review and comments we cant do what they are asking! In effect by their own rules not aloud to interrupt a clients budgetary position.

    Food for thought.
  • Brissie Broker | 26 Nov 2015, 11:10 AM Agree 0
    I don't think ASIC know what they want, and they sure like to make it clear as mud to the brokers with their vague regulatory guides. Someone there needs to just come out with a clear outline of just what they want.
  • Broke Broker | 26 Nov 2015, 11:28 AM Agree 0
    Here we go again ASIC employees justifying their own salary and have no sense of reality. Are defaults in real terms worse than before? Is there a correlation between client's discretionary spend to defaults?

    This is where I may like Banks as ASIC will not dare bring in something so stupid as they will be shot down in flames by the big four and general public.

    Why do we call it 'discretionary' spending? so the consumer can make adjustments to their lifestyle to get the house that they have been longing for, to have that dream holiday or provide their children's house deposit.

    Does ASIC want to regulate + determine what people spend their discretionary money on to inhibit Australians to fulfil their dream?

    Come back down to Earth ASIC, do your job of corporate policing and not social policing.

    You do an excellent job in attacking the vulnerable ! About time you get investigated for being so stupid.
  • Macarthur Broker | 26 Nov 2015, 01:47 PM Agree 0
    This is actually quite scary. That level of enquiry will be the trigger to make the broker proposition completely unworkable. It's already tough enough to ask a client what that $40 direct debit is to be told it's my Gym fees and why it is it any of your business anyway? Further I expect and hope that my kids would go out with their mates every weekend and have overseas trips before they buy a property. I guess they will be told they afford a mortgage because they travel too much.
  • John Sanders | 26 Nov 2015, 05:12 PM Agree 0
    OVERKILL! Is it not enough lenders test applicants at around 8% and not 4.5%? Or the cost of living they use is really exaggerated? Give me a break!
  • Astonished | 27 Nov 2015, 02:22 AM Agree 0
    Which ASIC senior executives accidentally told the media what they were naval gazing about? Time for some new senior executives who have a clue. It is these types of comments that give the public service a bad name. ASIC employees please think before you speak.
  • Your Kidding | 27 Nov 2015, 09:09 AM Agree 0
    It is comments like the below that demonstrate brokers have a very long way to go before there regulatory obligations as met. On reflection this has been a requirement for over 5 years now.
  • Dean | 27 Nov 2015, 09:42 AM Agree 0
    Lets not complicate this anymore than what is needed. Brokers are effectively "agents of the bank". APRA has made it very clear that there is a gap between HEM or HPI versus actual expenses. Blindy freddy can see that. So if that is the issue - APRA should direct the banks to address it and brokers simply then need to do what is asked of them as per the the banks requirements.

    I currently work for a credit union and we are now required to do this - as painful as it is. If it becomes the industry norm - then customers wont object as it will be standard. The issue always is in this industry is that some do what is asked whilst others somehow get away with it.
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