As Westpac and ASIC continue to clash over responsible lending measures and the big four face remediation bills of more than $5bn, focus has turned once again to the need to improve responsible lending frameworks.
The HEM system – which was repeatedly scrutinised during royal commission hearings, yet avoided being scrapped – is slowly being phased out by three of the big four, with the remaining bank telling Australian Broker that it is committed to strengthening existing systems.
Westpac said that it “takes its responsible lending obligations seriously,” emphasising its “robust processes” that are continually adjusted to better benefit customers.
The spokesperson explained, “We recently updated our group credit policies to enhance the way we capture customer living expenses, commitments, and verify documentation, with the number of our expense assessment categories captured for home loan applications changing from six to 13.
“We recognise sometimes it can be difficult for customers to provide a complete picture of their expenses and the enhancement of our expense categories means our staff and brokers have the opportunity to prompt customers to remind them about particular expenses they may have forgotten.”
At the end of last month, ANZ announced that it would be pulling back its reliance on the HEM model for assessing borrower eligibility.
According to CEO Shayne Elliot, ANZ is preparing to reduce the number of loans reliant on HEM from 70% to around one-third of all mortgages written by this July.
In July of 2018, CBA extended its list of Monthly Living Expense (MLE) categories to be mandatory for the broker channel in addition to the proprietary lenders already required to record expenses using the system.
The list includes large front-of-mind expenses such as children and pets, transportation, medical and housing expenses, as well as the smaller costs that consumers might otherwise forget to list such as clothing and personal care, travel, and entertainment.
When asked for comment, a CBA spokesperson was unable to speak to specifics but reiterated, “The Commonwealth Bank is committed to responsible lending and ensuring that we have a clear understanding of our customers’ financial situations.
“We constantly review and monitor our home loan processes and policies to ensure we continue to meet our responsible lending obligations and do the right thing by our customers.”
While NAB has yet to announce any official changes to its lending criteria, there has been discussion of taking a deeper dive into borrowers’ existing debt commitments in order to complement and bolster the current systems in place.
However, NAB declined to provide detailed comment on its progress at this time.