MFAA's ASIC stance gains non-bank support

by Ben Abbott01 Dec 2011

Lenders and brokers should be sharing responsibility for responsible low-doc lending, rather than letting newly enfranchised regulator ASIC push the weight of verification on to brokers.

Following the release of an ASIC review of broker adherence to responsible lending which identified problems with low-doc  broking, Liberty Financial's John Mohnacheff has come out in support of the MFAA, saying brokers should not shoulder full responsibility for verification.

"It's going to take some time for ASIC to get a better understanding of how brokers can and do operate," Mohnacheff said, arguing that there should be a "happy compromise" between broker and lender responsibility.

"The investigative powers of a lender are much greater; lenders have got access to a lot more information than a broker will ever have," Mohnacheff said.

For exapmle, lenders are able to statistically analyse borrower applications, allowing them to assess whether stated income is "about right", based on occupation, location and age.

Brokers should not be responsible for checking the veracity of accountant's letters, he added.

"The relationship is not between the accountant and the broker, the relationship is between the accountant and their client. A broker can ask that they provide as much as they can, but it is not up to a broker to adjudicate if that information is right or wrong.

"As long as a broker can provide as much as they deem they are able to, then the lender can look at it and make a decision," he said.

Mohnacheff said the low-doc lending area has many "peculiarities" depending on the lender, and the expectation that brokers should be able to know all of them is "unjustified".

Liberty is seeing more brokers steer clear of low-doc lending as a result of the legislative changes, which are leaving brokers fearful that they may be held liable.

"We are very disappointed - bitterly disappointed," Mohnacheff said.

"There is a few brokers who really understand low-doc lending and they have maintained the volumes they are doing, but it's the newer or less experienced brokers that are too scared to go there," he said.

This is having a resultant effect on low-doc volumes. "No one can say low-doc volumes are strong. I'd like them to be strong - it helps business people to get deals across the line," he said.

Related stories:

ASIC, MFAA clash over verification

'We can work our way through it': Naylor



  • by Garry 1/12/2011 11:44:06 AM

    ASIC are going too far with this issue. The banks are the ones who lend the money and are taking the risk so they are the ones who should determine which loan is regarded as responsible lending. WIth Low Doc loans - what happens if a business collapses after the loan is granted? Is ASIC going to state brokers should have known because we should have investigated the business further? It would be really helpful if ASIC fully understood this business. They are clearly showing they dont.

  • by ozboy 1/12/2011 11:52:20 AM

    Garry I think you could be right but should we take some responsibility in educating ASIC? I know the MFAA has been in discussions with them now for over 3 years and if they can't educate ASIC about what we do over this time then perhaps we as brokers should stop relying on others and actually step up to the plate. Any brokers willing to give it a go? Easy to complain that get involved? Mmmm.

  • by WP 1/12/2011 11:57:19 AM

    The ASIC have become so pre occupied with income that they have forgotten the best indicator of all, past behavior.

    I have two clients at the moment who are paying loans at a rate in excesses of 9%, but because of restrictions, I am having trouble refinancing them.

    They have demonstrated that they can pay the loan at 9% every month for the last 5 years, regardless proven income. If they can and do pay at 9%, they can clearly pay a refinanced loan at 7%.

    Even if they are struggling with the new loan, they will be struggling $12,000 less than they do currently. So to me than means if I can save the $12,000 per year, then it is responsible to do so regardless of what there income is. After all the alternative is to leave them on 9%. The ASIC hasn’t even considered this problem as far as I can see.