Brokers say banks' requirements for non-conforming home loan applicants are too extreme. We speak to Ken Sayer of Mortgage House and Moshe Moses of Niche Financial Group for their thoughts on low doc loans in the wake of the GFC.
Video transcript below:
Donna Sawyer, Australian Broker TV
Donna Sawyer: Brokers say banks and policy makers have gone too far when it comes to their requirements from non-conforming home loan applicants. Ken Sayer of Mortgage House says low doc loans were too accessible in the years prior to the GFC but these days there are heavy restrictions on non-conforming borrowers.
Ken Sayer, Mortgage House
Ken Sayer: I think it’s an overkill to be fair. I think it was too easy in the 2003 to 2006 period and now it’s gone to another extreme. I think reality is somewhere in the middle or the appropriate position is somewhere in the middle and it’s really a case of meeting a customer and understanding where their cash flow stems from.
Moshe Moses, Niche Financial Group
Moshe Moses: There are those brokers and obviously those people who do lie in terms of loc doc and non conforming, but that could be said in terms of full doc lending as well. So I guess overall it is required, but again as any knee jerk reaction they can go overboard and probably have gone overboard.
Ken Sayer: We are still financing them today, but they are not low doc homes, they are fully verified loans on a speculative basis and they don’t pay 6.7% i.e. a low doc rate or 7%, they are paying 9s, 10s and 11s.
Donna Sawyer: Moshe Moses of Niche Financial Group says fewer lenders are willing to do business with non-conformers and that’s a challenge for brokers.
Moshe Moses: We are also seeing a diminishing in term of the funders who are providing the low doc and non-conforming finance, but I think also generally is the amount of information that you still require, a lot of people don’t believe that you need information for these type of borrowers, but we still do far more in terms of investigation than what we would for a full doc client.
Donna Sawyer: So what do brokers need to know when working with clients classed as non-conforming? Moshe Moses says brokers need to be able to say no, when the need arises.
Moshe Moses: We need to be upfront with that person to make sure that they are not wasting their time and your time, to make sure that they are not you know, not improving their position. So therefore if it needs to be said that this does not suit you, well I think we need to say that. But then on our behalf we need to investigate the client even more, make sure we get the appropriate information, do a bit more of research in terms of their [beta] search, in terms of their background.
Ken Sayer: The only way for a broker to be able to satisfy customer’s needs is to get close to and understand their customer’s business. Low doc borrowers are generally speaking self employed and it’s very much, it’s akin to old fashioned banking. You visit them at their workplace, you understand their business, you understand their strengths and weaknesses and you understand how their cash flow is impacted, be it seasonal, be it cash starvation and once you understand how their heart beats, it’s very easy to fund them.
Donna Sawyer: This is Donna Sawyer reporting for Australian Broker TV.