An ASIC review of low doc home loans has found that lenders have tightened their lending practices following the introduction of responsible lending laws.
ASIC deputy chairman Peter Kell said, “ASIC, along with other regulators, has a strong interest in home lending practices. Our review shows lenders have lifted their game since the introduction of responsible lending laws.”
Prior to the National Consumer Credit Protection Act 2009, lenders were more liberal with verifying a borrower’s financial situation for low doc loans, often only relying on a statement from the borrower that they could service their mortgage repayments.
ASIC said its review of 12 lenders saw that they had taken steps to reel in their low doc practices. The watch-dog found that lenders are providing ‘low doc’ loans to a narrower range of borrowers, they are obtaining additional information to verify income and had additional processes in place to confirm the reliability of information provided by mortgage brokers.
APRA statistics also indicate that after the introduction of responsible lending laws low doc lending has tightened – declining from 6.4% of new residential loans by ADIs to 0.7% of new residential loans.
However, the regulator did identify a number of compliance risks including poor record keeping, reliance on benchmark living expense figures and limited verification of a borrower’s ongoing fixed expenses.
Kell says that despite the strength and competition in the market, lenders should not slip back into old habits.
“However, industry must not be complacent. Compliance with responsible lending laws is a key focus for ASIC and we will take appropriate enforcement action where conduct falls short.”