Getting tough deals across the line

How non-conforming lenders have helped brokers deliver solutions to clients who didn't fit the typical major bank scenario



Many brokers deal with fairly straightforward residential deals the vast majority of the time. But some clients’ circumstances call for outside-the-square thinking. Non-conforming lenders specialise in outside-the-square. Here’s how lenders helped brokers deliver solutions to clients who didn’t fit the typical major bank scenario.

The scenario:

A broker recently presented a loan application for a self-employed borrower who was going through a divorce. The loan purpose was to refinance an existing joint mortgage into the name of the borrower solely combined with the consolidation of a few smaller consumer debts. Additional funds were also required to payout the ex-partner. The borrower had been in business for 16 months.

Unfortunately for the borrower the relationship had broken down to the point that unknowingly to them several utility bills had gone unpaid. The accounts were held in the name of the borrower, so as a consequence their credit report contained two recent default listings. These listings were a $1,600 electricity account and a $400 phone account. The borrower had maintained the repayments on the mortgage and the consumer debts.

A loan to 80% of the property value was required, and due to the stresses associated with the breakdown of the relationship the borrower had not yet had the opportunity to finalise their current taxation returns.

The solution:
The broker presented the application with a full explanation as to the default listings, together with six months repayment history on the mortgage being refinanced. Recent statements on the consumer debts being consolidated were also provided. To support the income position of the borrower, the broker provided a stated income declaration from the borrower together with an income verification letter from their accountant.

With the documentation provided, Resimac Financial Services was able to offer a Specialist Clear Alt Doc solution. With the two recent default listings both under $2,000, the borrower qualified for our entry level Specialist Lending solution.

Resimac Financial Services disregards all adverse credit report listings when they are under $2,000, irrespective of when they were listed. Self-employed borrowers who are unable to provide the current two years taxation returns have the option of providing either an accountant’s verification letter, six months BAS or 3 months business bank statements to support their stated income declaration. Solutions for self-employed borrowers are available to those who have been trading for at least six months.

The takeaway:
Brokers needn’t be put off by the fact that a potential client may not fit the guidelines of mainstream lenders. The underlying principles of the loan assessment process haven’t changed. The application still needs to meet servicing guidelines, the security being offered must be acceptable to the lender and finally the loan must not be unsuitable. The only additional requirement for a Specialist Lending application is the background story must detail why the borrower requires a Specialist Lending solution and more importantly what has changed to ensure the borrower isn’t in the same situation a few months down the track.#pb#

In the scenario examined, the broker was easily able to explain why the borrower had adverse credit listings. In addition, by demonstrating that the borrower was already maintaining the required loan repayment across the current debts the broker was able to show that the borrower should not default in the future.

The scenario:
Alastair wanted to refinance his mortgage, consolidate his credit card debts and obtain $80,000 in cash out in order to undertake home improvements. The total LVR for his application was 80%.

Self-employed for three years, Alastair’s income has increased considerably from first two years of the business and he has not yet done the latest year’s financials. Therefore a lo doc solution was going to be the most appropriate for his situation. His business is GST registered, and he is able to provide business activity statements (BAS) to verify income.

To further complicate matters, Alastair had a default for council rates of $1,800 due to a marriage breakdown. This was listed in August 2011 and was paid April 2012.

The combination of being lo doc, requiring cash out and having a default meant it prohibited most lenders from being able to provide a solution to Alastair’s needs.

The solution:
In this particular instance Alastair had a need for a product covering both these niches. The Homeloans Accelerate RED low doc 80% LVR product was the answer to Alastair’s needs.

This product does not use credit scoring for assessment, nor are applications required to satisfy criteria of mortgage insurers as LMI is not required.

The Homeloans Accelerate RED low doc is generous on the tolerance of credit impairment, with unlimited adverse credit (paid or unpaid) when registered more than two years ago, and minor defaults of under $1000 ignored. Discharged bankrupts are also considered.

It is also accommodative with regards to loan purpose, being available for refinance, debt consolidation (no limit to the number of debts), unlimited cash out to 80% for acceptable business purposes including ATO debts, working capital and purchase of business equipment.

It also offers a range of verification options.

The takeaway:
The biggest takeaway from this scenario, is never assume that a deal can’t be done. Despite being a borrower with credit impairment, requiring a lo doc loan for cash out purposes, the deal could still be done.

Homeloans’ broad product range covers such a wide variety of scenarios. We offer loans not requiring genuine savings to 95% LVR and up to 85% without LMI or Lender Protection Fee, and that are assessed without credit scoring.#pb#

We have loans for varying credit impairment situations including discharged bankrupts from day 1 to 95% LVR, paid and unpaid defaults listed more than two years ago ignored, defaults under $2,000 ignored (paid or unpaid), defaults paid more than one year ignored and unlimited arrears considered.

And what's more, we offer loans to 457 Visa holders to 95% LVR, for vacant land to 90% (non-build), and tax debts (including ATO arrangements).

Liberty Financial
The scenario:

A family with three young children faced financial crisis after the sole income earner injured himself at work and was off for a lengthy period.  As a result, they racked up over $100k of credit card debt across 15 different facilities and soon got behind on repayments. Although the family had plenty of equity in their home, the sheer number of debts and arrears meant they had limited options with numerous lenders turning them away.

The solution:
An experienced broker introduced them to Liberty who approved a loan to refinance and consolidate all their debts into one manageable repayment, saving them a staggering $3,000 in interest each month.

The takeaway:
Regardless of the circumstances or the enormity of the challenge, it always pays to call Liberty first.

The scenario:
A young professional with a healthy deposit and clean credit was looking to purchase his first investment property.  Numerous lenders declined his application on the basis that he was self-employed for less than 6 months and was unable to provide 2 years business financials as proof of income.

The solution:
He eventually approached a broker who knew to quickly contact Liberty, knowing they offer great options for short term self-employed applicants. Liberty reviewed his recent bank statements together with his previous PAYG Group Certificate to confirm his current self-employed income and prior PAYG earnings. Although his business was new, Liberty approved his application given his previous industry experience and that he was able to sufficiently service the loan.This is just another example of how Liberty thinks ‘outside the box’ to create solutions to help customers.  

The scenario:

A broker was seeking a lending solution for a client who wanted to purchase an owner-occupied property after his divorce.  Prior to the divorce, he owned and operated a childcare business with his ex-partner.  However, as part of the divorce settlement, his partner took over this business and the borrower returned to his previous trade as a glazier.  Being self-employed and only trading since January 2015, his ABN was only five months old at the time of application.

Having been in business for less than six months, the borrower found it impossible to secure finance, which would allow him to move on with his life post-divorce, through traditional lenders.  To make matters worse, the borrower also had some minor defaults on his credit file as a result of the divorce proceedings.#pb#

The solution:
The broker contacted Bluestone Mortgages and explained the borrower’s situation.  Bluestone was able to come to the rescue with its innovative new product launched to help self-employed borrowers who have only been in business a short time - from three months.  Business Easy is a fresh approach to the specialist lending market, providing brokers with real solutions for their customers who are looking to purchase a new home or refinance their existing home loan(s) to access equity that can be used as additional capital in their business.

As long as the borrower can demonstrate a good cash flow and revenue through their business to support the serviceability of the loan, they can secure finance through Bluestone’s Business Easy product.  In this instance, the borrower was able to show Bluestone that he had the ability to service the loan by submitting his business bank statements, which showed income derived from the construction company he sub-contracted for on a regular basis.

The takeaway:
By managing the expectations of the borrower over time the broker will be able to refinance into a prime loan when he has a longer employment history and an improved credit position.

The borrower was extremely happy with the solution provided as he had been unable to find someone who could help.  As such he will be a great advocate for the broker in the coming years.  By working with the customer to find a solution and providing support for the entire process from application through to settlement, the broker has effectively created a new income stream for the future and likely a client for life.

La Trobe Financial
The scenario:

Self-employed applicants had been operating their business for 3 years and were looking to expand by modifying the business premises and purchasing new stock.  Applicants required $120,000 to modify the premises and $80,000 for additional stock, giving a total “cash-out” requirement of $200,000.

To facilitate this, the applicants were looking to access equity by refinancing their owner-occupied home (currently owing $340,000), borrowing 90% of an expected value of $600,000 (Loan Amount of $540,000) to provide them with the $200,000 they required.

Following lodgement of the application with a major bank, the applicants encountered two challenges: The valuation of their owner occupied residential property came in lower than expected at $575,000, and one of the applicants had three unpaid defaults totalling $26,000 and an ATO debt of $25,000 relating to unpaid tax and debts originating from an extended period off work for the applicant to treat a serious illness two years prior.#pb#

Due to the outstanding ATO debt and unpaid defaults, the applicants were unable to obtain LMI and their loan application was declined by a major bank.

The solution:
We were able to refinance the applicants’ owner occupied residential property to 80% of the valuation amount under our PRIME risk grade, giving a loan amount of $460,000.  

From this, we repaid their existing mortgage ($340,000); unpaid defaults ($26,000) and ATO debt ($25,000); leaving equity release of $69,000 for business expansion.

In addition, the clients owned the commercial property from which they operated their business.  The clients estimated that the property was worth $800,000 and they owed $420,000 against it.

We were able to refinance their existing commercial mortgage accessing additional equity by approving a loan of $560,000, giving them additional cash of circa $140,000.

The overall result being that we achieved the applicants’ objective of accessing $200,000 for business injection and cleared their outstanding debts in the process.  

All loans were approved using our Lite-Doc products.

The takeaway:
Specialist Lenders are a great alternative for brokers and their clients when the major banks and LMIs are unwilling to assist. La Trobe Financial is able to provide specialist lending solutions across its broad product range, which includes Residential, Commercial, SMSF, Development Finance and Non-resident loans. These products are available on a Full-Doc or Lite-Doc basis, and can cater for credit impairment where it has occurred as a result of an unforseen life event. Having specialist options across multiple asset classes allows brokers to structure better solutions for their clients. The scenario above resulted in the broker refinancing two mortgages from a major bank earning full commissions on both – from day 1 with no clawback applicable. We were able to turn around a possible cancellation to a profitable restructure, a win-win for the clients and broker.


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