Broker: Lo-doc loans to blame for repossessions

by Caroline Dann13 Jul 2012

A leading broker is blaming the pre-GFC popularity of lo doc loans for current record-high repossession rates in WA.

A total of 1,500 repossession applications were lodged with the WA Supreme Court from June 2011 to June 2012. 

It’s the highest-ever number recorded in Australia, topping levels seen during the GFC.
WA broker Warren Dworcan told Australian Broker Online lo-doc loans were irresponsibly approved in the pre-GFC days, and the negative impact is being felt now.
“A lot of self-employed people, for example, were able to take out loans without the evidence they could afford it. It was all unsubstantiated, but got approved. The false sense of growth experienced in WA leading up to the GFC simply pushed the envelope. It was all about over-capitalising and over-extending,” he said.
He warned that higher repossession figures were a risk in the near future.
“At the end of the day, we may not see the last of this yet. We’ll see a flow-on effect from the over-zealous years which could result in even more home repossessions.  We haven’t seen what effects the changing interest rates have had either, so it’s a matter of waiting and seeing.”
Brokers should do all they can to ensure clients are realistic about repayments, he added.
“Brokers should ensure they comply with all requirements set out in the NCPP, which came into play (thankfully) after the GFC. Using lo-doc loans carefully is a good thing from an ethical point of view. You should never put a client in a situation where they’re over-extending and taking unnecessary risks,” he said.
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  • by Gary Perth 13/07/2012 11:08:38 AM

    I doubt that Lo Doc loans are the major cause of repossessions, I would imagine that the 95% plus capped LMI loans on over priced properties settled in 2007 and 2008 may have a fair share of that pie.
    Most Lo Doc loans had LVRs in a position where a 20% drop in prices would have not forced a repossession. The repossession is usually due to extremely poor decision making by a LO Doc borrower, not the loan it self. or,The common reason I feel is couples seperating, pregancy or job losses in the 95% plus borrower group who lost any equity when housing prices dropped in 2009, 2010.

  • by Dean 13/07/2012 12:03:19 PM

    The LVR has nothing to do with it. EQUITY DOESN'T SERVICE DEBT - Income does and there is little doubt that the vast majority of low doc borrowers made false or at least very ry "optimistic" declarations to get the loan in the first place....And the banks encouraged it by applying little or no verification and discounted pricing for these higher risk loan and now we are seeing the results.

  • by SteveOz 13/07/2012 4:10:26 PM

    Is this real evidence or anecdotal evidence?