Brokers should follow their own credit policy - not the lender’s - when dealing with low doc loans, says Pepper’s Mario Rehayem.
Jon Denovan from Gadens Lawyers said last week that, despite the recommendation in ASIC’s Report 262, some lenders and brokers still appear to be relying on accountants’ letters in order to determine whether an applicant qualifies for a loan.
Denovan said letters from accountants can satisfy the requirements to make reasonable verification of a customer’s financial situation, but only if they include specific information.
“Report 262 suggests that accountant’s letters should confirm the customer’s actual level of regular income, specifies the basis on which the statement is made, includes comments on previous earnings and the underlying information supporting the statement, and identifies the period for which the accountant has been engaged by the consumer,” he said.
Rehayem says Pepper doesn’t accept accountants’ letters as a form of income verification in their low-doc loan applications.
“An accountant’s role is not to express an opinion if the borrower is able or not able to afford the proposed loan, this is the lenders role. The accountant’s role is to confirm the borrowers actual level of regular income and needs to be in a position to specify the basis on which the statement is made.”
Rehayem says it’s the broker’s job to carry out a preliminary assessment and the lender’s job to carry out a final assessment. He says it’s important that these two roles are not confused.
“If a lender requires an accountant’s letter that does not contain the sufficient questions for the accountant to answer, a broker should fill in the gaps and obtain as much information from the accountant to satisfy their own credit policy.”
He says brokers need to make sure that they’re consistently recording information while verifying a borrower’s income and should do so using multiple sources of income verification.
“Unfortunately at this point of time the vast majority of lenders that do accept accountants’ letters as a form of income verification are equipping brokers with a template that is insufficient to make an acceptable assessment, which is why a broker should always revert to their own credit policy.