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MFAA's ASIC stance gains non-bank support

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Australian Broker | 01 Dec 2011, 07:00 AM Agree 0
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
  • Garry | 01 Dec 2011, 11:44 AM Agree 0
    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.
  • ozboy | 01 Dec 2011, 11:52 AM Agree 0
    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.
  • WP | 01 Dec 2011, 11:57 AM Agree 0
    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.
  • DB VIC | 01 Dec 2011, 12:37 PM Agree 0
    If ASIC expect a broker to take the full wrath of responsibility, and the lender clams stake to the same, then wouldnt it be fair that the broker has some influence over the lenders decision. Let the broker decide if the lender should take the risk and approve the loan if they expect the broker to validate a low doc borrowers income. An Accountant is required by Professional oath to reflect what is true and accurate and are liable professionally for the representations them make, when those representations are false. If the accountant agrees that a borrower can afford the loan (given in most part the accountant of a self employed borrower is the one that refers the borrower to the broker for the purpose of the loan), then the banks should be accepting of the delcared income backed by the accountant. How is a broker suppose to validate an accountants statement without questioning their professional integrity. Why not place more onus and responsibility on the Accountant. For many businesses and business owners, book keepers complete the day to day accounts and lodge the BAS statements for the business quarterly, but yet the book keeper cannot sign off on tax returns and income statements, yet the banks will use BAS statements to validate income for a low doc borrower as opposed to accepting a declaration by accountant as being more powerful. Someone has clearly missed the mark here? BAS statements do not always give a true and accurate refelection on a business, nor is it an accurate method for determining a Director or owners income. Guys you really need to rethink this.
  • WP | 01 Dec 2011, 01:02 PM Agree 0
    DB VIC
    Re BAS, It might no be 100% correct, but it shows turnover, and money spent, and wages.

    From this you should be able to get a rough P&L.

    And that is far more accurate than the simple 40% of turnover that some lenders are using now. I have clients whose profit is well over 40% of turnover, and others that are closer to 5%.
    Using 40% is worse than a guess.
  • Bazooka | 01 Dec 2011, 01:34 PM Agree 0
    ASIC need to target lenders' low doc policies rather than brokers. Its unfair to punish brokers who are meeting the lender's standards. ASIC have got it wrong. If they made lenders have higher low doc requirements, brokers would have to meet them. Instead they expect brokers to be a lot more than what we are paid to be. I agree there is a need to protect customers from rogue brokers but they are unnecessarily restricting lending by their nanny state attitude. Also they and the regulator's knee jerk reactions have demonstrated a clear misunderstanding (or just a political move to be seen to doing something) of the causes of the GFC. Remember Australia actually prospered when everyone else collapsed. Now they are hell bent on restricting credit which may contribute to recessionary pressure which is the opposite of what they wanted to avoid.
  • Peter White FBAA | 01 Dec 2011, 03:15 PM Agree 0
    People you need to remember this is already law. You have responsibilities under the nccp's responsible lending conduct to meet your obligations. What ASIC is requesting isn't hard and many lodoc lenders require disclosure of actual income vrs just a motherhood statement. Simple easy inquiries need to be made to protect yourself from possible recourse from borrowers under the nccp and even lenders whom may point the finger of blame at you. I have been at the forefront with ASIC in its review and I know many brokers if not all whom were a part of the review process have taken on board what has been said without problem. It's up to the accountants to step up to the plate with clearer and better disclosures and also lenders to rethink responsible lending credit policies for lodoc lending (this was never originally designed for consumer debt but for low lvr business debt secured by residential properties - I know I assisted design one of the first products. One critical thing with this review and my comments to ASIC was/is if this is what's required for brokers then the lenders too must tow the line as they are the ones that set the credit policies and requirements and not the broker. Take it on board or caveat emptor ..... again it's already law so compliance with the law is key.
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