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Calling a spade a spade: The trouble with guarantor deals

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Australian Broker | 25 Jan 2013, 08:00 AM Agree 0
Recent changes to some lenders' guarantor requirements are like calling a violent bull terrier a 'puppy', says one finance broker
  • Patrick | 25 Jan 2013, 09:58 AM Agree 0
    Brokers are supposed to be licenced or authorised representative credit advisers, but we have a lot of loan salespersons and not enough real advisers in the industry. It is possible to both limit the liability of and provide some security to a third party, family or non-family party providing deposit gap support. The transaction appropriately structured . To explain in detail would be to give away my value add, as I am a true adviser not just a salesman.
  • Kate Brown | 25 Jan 2013, 10:01 AM Agree 0
    Surely the fact that guarantor clients are having to seek independent legal advice and sign a legal document stating they are fully aware of what they are doing, negates any concern for coersion? Yes, there are people out there in the industry, as well as clients themselves, who give the rest of us a bad name and make our jobs harder, but surely the banks are aware of the measures that need to be in place to prevent any fallout from guarantor loans???
  • LH | 25 Jan 2013, 10:22 AM Agree 0
    Sorry Kate, but using the “independent advice” backstop is weak sauce and is not looking out for the client. Having independent legal advice is dependent on the quality of the advice. You are putting every legal practitioner on a pedestal.
    Coercion can include the legal fraternity as well. You are also assuming that every guarantor will be asked “Do you REALLY know what you are getting yourself into?”.
    If one feels strongly about something (and coercion includes people who are convinced they are doing the right thing and cannot be otherwise convinced), try and convince them otherwise!
    The time has come for credit advisors to be JUST THAT!
  • NQ Broker | 25 Jan 2013, 10:38 AM Agree 0
    I think each and every deal should be looked at on it's own merits. I have written a number of guarantor loans and never had a problem. If you as a broker are not comfortable with a deal, don't write it. I refuse to write any low doc business these days because I'm no longer comfortable with it. Brokers dont have to write the deal just because it's in front of them. If they are uncomfartable writing guarantor loans (family or other) then simply explain the circumstances and move on to the next deal. Easy.
  • PeterT | 25 Jan 2013, 10:43 AM Agree 0
    How about the third reason for doing this sort of thing: You want to help someone whom you are close to, but they're not a family member.

    In the past 18 months 2 close friends have purchased properties and have been short on the deposit ($20k & $10k respectively). I gave them cash on the understanding that they pay it back as soon as they were able. In neither case did I receive any financial benefit; I didn't even write the mortgage! I did it because I like them, trust them and was in a position to help.
    In both cases the money was returned within 6 months.
  • Mal Bartley BFA Finance Pty Ltd | 25 Jan 2013, 11:16 AM Agree 0
    Please don't miss the point of the discussion it is not about the technical detail of giving a guarantee nor the ability to mitigate risk by third party advice!.

    The point here is when a Guarantee document is used as a linking document the end result is a person signing a guarantee could be asked to pay up!!.

    So in essense why does the NCCP regulations in this country allow by default a person to entertain this risk without the same protection as a person referred to as a borrower?

    I have never heard of a solictor undertaking a needs anaylsis or serviceabilty calculation etc etc.. whilst giving advice under a solicitors certificate. Why should they?, it is their responsibility only to explain the concept of legal liabilty under the document which is not the same advice a professional broker provides to a client.

    So the message here is any Guarantor should be given the same protection of law under the NCCP.

    For the technically minded upon us:-
    Liability of Surety. the primary liability rests upon the debtor, and the surety's liability is secondary: ie it arises only upon default by the debtor.

    So it would be technically incorrect to refer to both as "Borrowers" to protect them under the NCCP. The bottom line "Securitas caveo".

    A bank can't hide the risk by calling the guarantee something "warm and fuzzy" like a "Parent backed facility" or a "3rd party advance". Which is exactly what is happening...
  • Coast Broker | 25 Jan 2013, 11:17 AM Agree 0
    I agree with Patrick. I structure the loan in such away as to limit the amount of the guarantee and also structure the application in such away as to repay the guaranteed amount over a quicker period of time. That comes from 30 years experience including assessment and approving roles
  • nick | 25 Jan 2013, 01:38 PM Agree 0
    I find the some feedback disturbing.A broker is not qualified to give legal advise about guarantees. Not advising the client to get independant legal advise from a lawyer is negligence at its highest level and a broker deserves and will succesfully get sued if the deal goes sour.
  • Mal Bartley BFA Finance Pty Ltd | 25 Jan 2013, 02:32 PM Agree 0
    Both LH & Nick make valid points perhaps in a perfect world before any Guarantee is taken by a lender the proposed Guarantor must seek a "Credit Advisers certificate as to servicability and be assessed under NCCP guidelines" together with a "Solicitors certificate of independant advice".
    At least the proposed Guarantor will have access to the NCCP guidelines and legal advice!..
    Would also support the notion of Credit Advisers being professional!...
  • Positive Broker | 25 Jan 2013, 04:36 PM Agree 0
    What's the problem? Why can't a close friend help someone out if they are able? It's not always about a financial benefit. Make sure the loan is structured properly, they get good quality financial and legal advise and everybody wins. Simple.
  • Kym dalton | 25 Jan 2013, 10:55 PM Agree 0
    Brokers. CreditED has 7 episodes, one of which is almost entirely devoted to guarantors and guarantees. The episodes make no judgements nor do they provide advice. They do however concisely and powerfully "explain how guarantees work". Then the applicant's confirm their understanding and comprehension of "how they work" and what their obligations are by answering a number of multiple choice questions that have been specifically crafted to ensure that applicants' understand what is required if providing a guarantee and what the potential implications are. The questions and answers have been very carefully crafted to mitigate the potential risk, that you, the broker, may face should the borrower complain to an EDR or bring suit against you under the NCCP. Independent legal advice seeks to "prove" comprehension once removed. CreditED provides greater protection as it requires the applicant to "prove" comprehension themselves. It shifts responbility back to the borrower directly. At less than $50 CreditED is the best value "responsible lending conduct protection" going. It is not another annoying level of compliance, but an efficient and cost effective risk mitigation tool for you and your business. I clearly have't been explaining it properly. Please allow me to rectify that by calling on 1800200765. This is not a "free ad" for CreditED- I passionately believe CreditED is vital to ensure the continued viability of our industry and your business.

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