Broker calls for clarity on pre-approvals
By
Kevin Eddy
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28/07/2010 6:00:00 AM
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11
comments
Lenders reneging on pre-approvals for home loans are costing potential house buyers dear, one of Australia's top ten brokers claims.
Justin Doobov, managing director of Intelligent Finance in Sydney, is warning that more and more lenders are 'reneging' on mortgage pre-approvals post-exchange.
"At least once a week, we are referred clients who have been elsewhere and whose lender has declined the loan after they've exchanged on the property, and we've had to take it to another lender urgently," says Doobov. "What some lenders are doing is asking for your payslips and so on again upon exchange, even though they've checked it already: if there's something that's not 100%, they'll decline it."
Doobov, an MPA Top 10 broker, adds that some preapprovals are essentially worthless.
"I can think of one lender where you just type in your name, your client's name ,the dollar value of the property, how much deposit the client has got and the client's income, and it spits out a response saying the client is pre-approved subject to verification. It means nothing, but buyers have been known to go to auctions and put down their deposit based on just that, only to find out that they've been declined for the original loan – and if if they can't complete, they'll lose their deposit and potentially get sued."
Doobov argues more consistency from lenders on pre-approvals would help: he suggests all pre-approvals should be valid for six months, should be subject to valuation only, and in some circumstances should require a signed declaration saying that the borrower's financial situation hasn't changed.
More broker intervention could help, too.
"An experienced broker can look at a client's situation and assess it beforehand," he adds. "For example, we will only get clients pre-approved with lenders that approve only subject to valuation, and we make sure we dot the i's and cross the t's before application; we also make sure that credit and employment checks have been completed, as well as full verification of supporting documents. If we don’t think the client should put their deposit unless the bank's valued the property, we’ll tell them so.
"Experienced brokers are the people who can make those judgement calls and sometimes save a client from themselves."
Latest Comments
Total:
11
comment(s)
Broker on
28 Jul 2010 10:05 AM
Of course they are worthless. Unless the loan is conditional it means nothing... and not a st george conditional!.... it took you this long to work it out. Pre approvals go into a holding pit and approved by a computer.. not docs are varified!
Mark on
28 Jul 2010 10:07 AM
The rules have changed for lenders from July 1 due to the National Credit Code. Lenders must ensure that a loan is "suitable" up until the moment when the loan contract is formed (usually when the borrower and lender have both signed the loan contract).
Responsible lenders will therefore decline a loan where the borrowers'' circumstances have changed to the point where the loan is no longer suitable.
This aspect of the legislation is designed to protect borrowers, and lenders who apply the legislation are acting responsibly.
If brokers genuinely have their clients'' interests as paramount, then far from being a negative, brokers should see this as a positive.
Think about it - why on Earth would any lender want to withdraw a pre-approval for any other reason? Competition for lending growth is fierce enough, and the costs of processing a loan high enough, to ensure that lenders will honour a pre-approval where they are able to act responsibly in doing so.
I would suggest that Mr Doobov talk to the responsible lenders on his panel and get a better understanding of the legal framework that he operates within.
Mark on
28 Jul 2010 10:52 AM
Just to clarify to the other Mark - comment at 10.07am. Responsible lending regulations are NOT in force for Lenders (ADI''s) from July 1st. Authorised Deposit Taking Institutions (ADI''s) are subject to Responsible Lending from 1st Jan 2011. If responsible lending was currently in force for ADI''s, could a lender currently offer a self certified low doc...the answerr is no...as verification of income is paramount to the responsible lending process.
However, brokers are currently subject to Resp Lend, so the self cert low doc must actually have the income verified by a broker...despite the lenders hawking the self cert product.
The fact is that lenders are probably rejecting a pre-approval based on their internal risk assessment process (which have been tightened post GFC) not necessarily the "Responsible Lending" process.
Tim on
28 Jul 2010 11:04 AM
An experienced broker would know that a pre-approval is just that and would advise their clients not to exchange contracts until the loan is unconditionally approved. In the case of an auction the client should only proceed where they have had all checks done and the pre-approval is only subject to valuation. The broker should ensure that the income verification documents are within the lenders required timeframe (eg: 31 days for ING) and all other requirements are current. Mark is correct with his comments re responsible lending.
Too often we read articles where people are stating the bleeding obvious about broking and lending practices and procedures. This implies incompetence, inexperience or illegal activity driven by too many brokers having been accreditted over the past 10 years by aggregation groups just wanting to get more numbers on their books. Here''s hoping the new NCCP legislation starts to weed out these people and lets the true "experienced brokers" get on with providing good, competent service to borrowers.
Phil on
28 Jul 2010 11:44 AM
There bigger R/E in SA are not accepting pre-approvals and know exacting which Banks will be a pain in the butt. ANZ and Homeside let you order a valuation prior to lodging an application, so this certainly satisfies Auction requirements. However yes pre-approvals are worthless, especially ones without mortgage insurance credit scoring! As for grandstanding about good/bad brokers and NCCP, I don''t know too many of either that will fail to get a license as its only the MFAA type brokers that are being regulated!
broker on
28 Jul 2010 12:09 PM
Mark, you are not correct about low doc loans. The legislation clearly stamps out No Doc loans but still allows Low Doc loans as long as the broker and lender are deemed to have made reasonable enquiries as to the Borrower''s financial position etc etc. It seems ASIC have been deliberately vague on exactly what is required from brokers. But it does indicate that for some clients, a self-certified Low Doc may actually be fine for them. It just will no longer be suitable for many clients who would have previously met just lender guidelines. Brokers and lenders may start to shy away from low doc lending because of ASIC''s vagueness. But there wills till be some that are comfortable with an interpretation of the legislation that permits sound low doc lending.
Peter Simmons on
28 Jul 2010 01:10 PM
I may be missing something here - why would any lender provide an unconditional loan approval where no COS exists?
Also, a pre approval must be conditional upon other requirement/s to be vetted, otherwise logically it must be something else.
One should never rely on a piece of paper that says "Pre Approval" unless one studies the pre conditions.
Further, at any time up until settlement, a lender can withdraw the loan offer even if contracts have been signed and returned. Ongoing there may problems too, should the borrowers financial circumstances change
Tony Lindley on
28 Jul 2010 02:52 PM
I would have thought that the editor would have checked validity of his editorials before he allows an embarassing article published. There is only one bank, A Mutually Provident one, that offers a full loan approval subject only to valuation. You pay a fee upfront to have the loan fully assessed and the fee is deducted off the establishment fee. To have a top 10 broker making the statements that he has made, shows a lack of understanding of the lenders policies.
Mark on "brokers" comments 12.09 on
28 Jul 2010 04:10 PM
Hi "broker", When you re-read my post you will eventually notice that I refer to "SELF CERTIFICATION" low docs and not low docs generally...when you have another look, you''ll find we''re both on the same page as I mention that "verification of income is paramount to the responsible lending process"...so SELF CERT low docs are therefore not an appropriate product for lenders to be canvassing without a disclaimer that says "self cert is not an option for a broker - you will need to demonstrate reasonable steps have actually been taken to verify income"
Peter on
28 Jul 2010 06:15 PM
Lenders should always pre approve loans after passing the Mortgage Insurer''s approval guidelines when appliciable. The only thing that may impact unconditional approval is the valuation, and confirmation that the client has the costs to complete the purchase.
Justin on
04 Aug 2010 02:58 PM
In relation to all of your comments about what I was quoted saying in the above article I thought I would clarify what I said to clear up the confusion.
I totally agree that a pre-approval is not worth the paper it is written on and that the pre-approval letters clearly state that the lender can cancel the approval up until the loan is funded.
The point I was trying to get across with my comments was that there are some lenders and some brokers who are not clearly explaining to their clients that the pre-approval cannot be relied upon and can be cancelled at any time. I, like all other experienced brokers are fully aware of the short comings of a pre-approval.
About once a week we are introduced to a new client who has had a pre-approval (THE PRE-APPROVAL WAS ORIGINALLY ARRANGED BY ANOTHER LENDER OR ANOTHER BROKER - NOT US) and the client has subsequently either been the highest bidder at auction or exchanged on a property, and the ORIGINAL LENDER has for what ever reason not wanted to fund the loan. These clients then want to engage us to find them a new lender that will fund the loan otherwise they wont be able to complete the purchase.
My intention of commenting for this article was to raise awareness that lenders and brokers need to fully advise clients that they have to be extremely careful with exchanging on a property that does not have a cooling off period as a pre-approval cannot always be relied upon.
I and my staff fully explain this to clients (apologies if you thought I had said differently).
A further comment I made was stating that some lenders do not even verify the supporting documents that you send in with the application. This is putting a client at further risk of the lender not honoring a pre-approval. Our request is that lenders should verify all the information provided upfront to minimize any risk of them not honoring the approval later. Yes as an experienced broker we will know if the supporting documents fit the lenders policy, but if the lenders have not even looked at the supporting documents, then more risk is held on the brokers shoulders until the lender has verified them.
Our intention when we get a client pre-approved (or conditionally approved) is to ensure we put it with a lender that does verify all the supporting documents upfront, does a credit check upfront and approves the loan subject just to valuation.
We then follow this up by aiming to have a valuation done and signed off by the lender before the client exchanges. On several occasions when the property is going to auction we may even undertake a valuation upfront and see if the valuation stacks up to what the maximum price the client will bid up to.
I hope the above clear ups my position as I believe that we are all agreeing the same thing.
Justin