An industry analyst has revealed that borrowers are woefully ill-informed about mortgage products, a fact that could find brokers under fire.
In a presentation to the MFAA Convention in Adelaide, industry consultant and Futurology principal Kym Dalton has pointed to results from his CreditEd borrower education software showing that consumers often fail to comprehend the most rudimentary principles of mortgage products.
Consumers tested by the software, aimed at educating borrowers on credit products, showed poor understanding of some of the basic features of home loan products. Of 680 mortgage holders surveyed, 50% did not know their current interest rate. More than a quarter were not able to define "equity", while nearly half did not know the definition of the terms "LVR" or "LMI". Twenty-seven per cent thought that home loans were non-recourse.
Dalton argued that brokers could safeguard themselves by better educating clients and ensuring their comprehension.
"What are the four most dangerous words in responsible lending? 'I did not understand'," he said.
Dalton urged brokers to confirm clients' comprehension of mortgage terms and products, saying that confirmed comprehension shifts responsibility onto the borrower and enhances trust between the broker and borrower. He argued that, in spite of the NCCP disclosure regime, "you can't legislate [people] to get smarter", and that brokers would have to take on the task of ensuring their clients were properly educated about credit products.