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Tougher lending criteria is ridiculous, argues broker

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Australian Broker | 07 Apr 2016, 08:07 AM Agree 0
The tougher lending criteria being imposed by the major banks, particularly in regards to living expenses, is hurting consumers and brokers
  • J | 07 Apr 2016, 09:04 AM Agree 0
    I would like to know why banks are not doing the same for credit card applications because there are so many people who are tied down to credit card debts and unable to make payment for the high interest rates.
  • Shawn | 07 Apr 2016, 10:22 AM Agree 0
    Tightening up by the banks is not a bad thing. I feel that everyone underestimates the cost of living these days, especially for couples with children. If the guidelines are tougher then it's the banks doing the right thing by borrowers. The last thing we need is an increase in default rates when interest rates go up. Let's keep a responsible approach in place by the banks.
  • Wozza | 07 Apr 2016, 10:42 AM Agree 0
    So Maria, if someone is forking out $3000 per month on private school fees but marginally services the loan based on HEMS, you think that is lending in a responsible manner?
    • Maria Rigoni | 07 Apr 2016, 11:20 AM Agree 0
      Responsible borrowers know how much they can afford in repayments better than I or any bank or any regulator can. The point... Credit worthy people with a proven repayment track record are being declined the opportunity to refinance to a lower interest rate product.
  • Marty McDonald | 07 Apr 2016, 10:46 AM Agree 0
    I agree more scrutinisation of unsecured credit is what is needed. This is what gets people into trouble. Quibbling over whether to include 80% or 100% of past overtime or commission income is largely irrelevant in the greater scheme of things.

    I also think if they are fair dinkum that they should look at employment stability more so than splitting hairs around servicing. Unemployment is whats causes defaults not whether their calculators say -$1 / month or $1 / month.
  • SEQ Broker | 07 Apr 2016, 10:51 AM Agree 0
    The regulators and lenders here need to grow a brain! I have a client that was paying 5.05% on a homeloan and 21% on a credit card. They were not in any financial hardship and statements evidence that they never made a late payment. Exemplary repayment history. So on a dollar for dollar refinance to 4% ish how can they be declined? They were though!

    Having been in this industry for 10 years yet it is only recently that I can't say really what an applicants borrowing capacity is. It is simply causing us to appear unprofessional. This is despite eagle eyeing statements... Lenders won't advertise what is included and not included in their HEM.

    Also, a BDM recently advised me that a non ADI / APRA regulated lender allows for succinct and accurate servicing because they don't have the same regulation. Where are the regulators trying to take us?
  • Roddo | 07 Apr 2016, 11:14 AM Agree 0
    So Wozza the borrowers paying $3K a month on private school fees that can't afford a mortgage are prepared to give up their home or their education? If ANZ want more scrutiny they can then pay an increased brokerage for the effort. More importantly at present it would seem that a lot of lenders are under resourced in servicing the broker sector - over a week for a decision is undervaluing the contribution our sector makes to their business. There needs to be greater industry pressure on response rates out of lenders.
  • Bottom Line | 07 Apr 2016, 11:37 AM Agree 0
    Agree with Maria. We're already servicing well above the 10 year percentage average as it is. Partly because APRA impose rules on banks, yet don't do any research and simply rely on overseas bankers for all their criteria & current & future beliefs.

    For example, a 3.99% loan I had was having to be serviced at 7.5% (almost double), living costs were well in excess of what the client was clearly able to demonstrate. Other loans all had to be serviced at the 7.5% despite being much lower, plus their commercial debt (which in the real world was cash flow positive by $500pm) with a monthly loan payment of $1800 was allowed for as $3,250pm under the bank's formula.

    After stacking all that up, they were able to say it missed by $20pm. Responsible Lending?? The antithesis of "common sense" (an old term applied before legislative red tape).
  • Papery | 07 Apr 2016, 11:38 AM Agree 0
    Most responsible people will prioritise spending. Roof over the families head... Food on the table... Petrol in the car... Keeping the kids happy/educated.

    In respect of the question about private school fees... Well the public system is FULL of kids who started in a private school & then moved across... Talk to the parents and it usually turns out that the child was unsuited for the private school environment or it just got too expensive.

    Why shouldn't the grown ups paying the bills be able to make a call as to whether they spend their money on dining out, private school fees or a mortgage... And by the way I've yet to see any category on any living expenses declaration/fact find that asks about the clients expenditure on tobacco, alcohol, drugs or gambling.

    Maybe the legislation should be more about responsible spending not responsible lending!
  • WF | 07 Apr 2016, 01:12 PM Agree 0
    I agree wholeheartedly with Maria. People will adjust their living expenses to meet their mortgage. If it's mortgage or champagne you buy beer and pay the mortgage. Secondly we are fixing something that is not broken. Arrears in Aust have always been low and this represents satisfactory responsible lending. Next, please let people make decisions and take responsibility for their actions. Mature adults should realise they have to pay it back. Not rocket science. If they meet the five c's and they want to borrow for a roof overhead, they will live accordingly or work harder to maintain lifestyle.
    Responsible lending is going over board. And come someone tell me when the sky was falling??!!!
  • Industry Rep | 07 Apr 2016, 02:17 PM Agree 0
    Some of us foresaw this when the NCCP Act came in. I'd have expected someone with Maria's background to know this too.

    This is all down to Government legislation, fair and square, and how the regulators are determining what constitutes responsible lending. APRA and ASIC are now working very closely together.

    If you look at why lenders are tightening up, they have to consider the substantial cost of financing a defended prosecution by ASIC or the likely imposition of a penalty plus the costs of appointing an external compliance consultant and the number of reports that person must lodge with ASIC besides having to contact and refund each affected consumer. All that costs substantial money and would be straight off the bottom line. Just look at what Westpac is having to fork out for Capital Finance Australia's breaches. I'm also assuming, too, that ASIC would not go after the lender's directors personally, criminally. There would be no PI cover available if the latter is proven.

    The law says the lender is the one responsible and who will be prosecuted for providing a loan that does not meet the responsible lending criteria, not the broker. Whilst there will be borrowers that would previously have got a loan or lower rate but now didn't, I doubt there's any broker that would like the NCCP amended so that the regulator could also prosecute the broker for recommending the loan.

    I agree with Papery, though, in that the legislation should include some level of responsibility being put onto the borrower for their borrowing. Unfortunately, we live in a nanny state.
  • Finally (you post my reply) | 07 Apr 2016, 02:33 PM Agree 0
    It seems to me that ANZ's decision to ditch the old Henderson Poverty Index (HPI) benchmarks would simply be a decision to comply with the law.

    Referring to ASIC v Cash Store, at paragraph 42 the Federal Court states:

    "Assessing whether there is a real chance of a person being able to comply with his or her financial obligations under the contract requires, at the very least, a sufficient understanding of the person’s income and expenditure. It is axiomatic that “reasonable inquiries” about a customer’s financial situation must include inquiries about the customer’s current income and living expenses. The extent to which further information and additional inquiries may be needed in order to assess the consumer’s financial capacity to service and repay the proposed loan and determine loan suitability will be a matter of degree in each particular case.

    While I understand that brokers want to write more loans and earn commissions, it is simply not good enough to place a borrower into a 30 year loan contract if they do not have the capacity to repay the loan, taking into consideration all life expenses.

    S.76 and S.77 of the National Credit Code enables a borrower to seek redress from the Court if the credit provider failed to make reasonable inquiries.

    I'm just glad that the Federal Court has now, actually, clearly defined the term 'Reasonable Inquiries'.

    I'm also pleased to see ANZ ditching the HPI and starting to ensure that real inquires are made. About time ANZ!
  • OzBoy | 08 Apr 2016, 07:52 AM Agree 0
    Where to start? "the former CEO of the Australian Institute of Professional Brokers" well that was some years ago and had about 500 members if that, let's face wasn't relevant at the time and certainly isn't now. While you might not agree with what APRA is doing and the flow on effects to the lenders I think if you look at all the data available then all in all it's probably not a bad thing in the long run. As we all know a previous track record does not point to the future and to think that clients (as a whole) can manage their expenses when over 80% don't budget is (imho) naive to say the least. Add to this the fact that it is incumbent upon the lender to show that the client can afford the loan both now and in the future, changes in capital requirements, the negative (rightly so) sentiment around banks and their morals/ethics of late and you can see why this action has been taken. Unsecured lending is the area that needs more attention however due to it's limited effect on the economy in general (compared to property based lending) it's not a priority at the moment. One of the first things I learn't in my long and illustrious finance career (haha) is that the person with the money dictates the terms. I am all for putting the responsibility into the hands of our clients however the reality is that it's not going to happen any time soon. Who here has taken a call from a client blaming them when they can't afford a loan they took out? When your house is on the line (and probably your marriage/partnership etc) you look for a way out and that can end up being to blame someone...anyone...but not yourself, it's human nature. While I admire Ms Rigoni's ongoing message it is getting a little monotonous and if things are that bad perhaps it's time you looked at doing something else.....again.
  • Bob | 09 Apr 2016, 05:17 PM Agree 0
    Wozza, you obviously have a child in a private school and cannot afford to. You can always sell your home and rent if you wish to take off the burden of your decision to put your child into private schooling!
  • Broke Broker | 11 Apr 2016, 02:08 PM Agree 0
    Totally agree with Maria Rigoni. Having been in the finance industry for many years show me proof/real statistics with delinquency and default rates in the space where clients who have the capacity to pay Private School Fees etc forfeit/default their home. Ridiculous noise from the regulators and 'legal' cases cited which is not a true indicator of peoples ability to use discretionary spending. As others have said, credit card and personal unsecured debt with profit gouging causes more hardship and is less scrutinised by regulators. Not many of these go to court I suggest. Totally agree with prudent and responsible lending not to the degree of invasive and unnecessary practice of restricting responsible borrowers and telling people how to live. This is irresponsible lending.
  • Adam West | 20 Apr 2016, 11:53 AM Agree 0
    The comments on this article are frightening. I am glad that the people who aregree with Maria are not in charge of the financial industry, because if you were, our banks would be some of the riskiest in the world.

    To say that you are disappointed that a bank is being prudent in its lending practices is a testament to your lack of understanding of how the system works.

    A borrower will also believe that they can afford to repay the loan that they want, but at the end of the day it's the bank that has to wear, and subsequently mitigate that risk.
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