Specialist lender Pepper has responded to an article published by The Australian that claims non-bank lenders are “aggressively spruiking” controversial low-doc loans by slashing interest rates and offering cashback giveaways and cruises.
In the article titled “Low-doc loans make an unwanted return”, it slams Pepper for “spruiking” a $1000 cashback promotion for non-conforming borrowers and offering mortgage brokers the chance to win a four-night P&O cruise for completing a course on how to sell specialist loans.
The article also takes a wider stab at all non-deposit taking institutions, making the claim that non-deposit-taking lenders are “currently the most active in spruiking the loans.” It cites a study performed by ASIC that revealed the proportion of low-doc loans issued by deposit-taking institutions had fallen from 6.4% of new residential loans before the GFC to the current 0.7%, urging a study to be conducted on non-deposit taking institutions.
Pepper has now hit back, saying the term ‘low-doc loan’ is both “misleading and outdated” in the Australian context of specialist lending.
“In 2008, the Australian government overhauled the mortgage lending sector, strengthening and improving the industry for everyone but also crucially redefining what ‘low-doc’ means. Today, the term carries little relevance for Pepper and the wider industry, as it does not accurately reflect official methods of income verification.”
Instead, Pepper refers to ‘alt-doc’ loans (alternative documentation loans) which have been designed as an alternative way to verify a self-employed person’s or small business owner’s ability to repay a loan in the absence of tax returns.
“These alternative ways of verifying income, for example the latest six months business banking statements, are in many cases more reflective of the current state of a business and over time have proven to be more accurate than 18-month-old tax returns. One could argue that alt-doc is just as rigorous as full-doc income verification,” Pepper said.
“At all times, Pepper champions responsible lending and we adhere to NCCP (Credit Code) requirements. We follow the same rigorous guidelines and labour intensive process any major bank would apply to lending.”
In response to “spruiking” loans by offering a promotion for mortgage brokers to win a cruise, Pepper says they will continue to support and train their broker partners.
“Pepper continues to support mortgage brokers – they are central to the mortgage broking industry in Australia and as a big an advocate of non-conforming loans as we are. This is why we will continue to develop and maintain, in collaboration with brokers, our endorsed broker education program to help improve and support the broker market,” the lender said.
“Specialist lending is an innovative, growing and thriving area of the Australian lending industry, which operates under strict regulations. Pepper maintains its commitment to supporting the industry, brokers and difficulties faced by the self-employed and those who don’t conform to traditional lending criteria when accessing funding.”