An ASIC executive has hinted at what will be revealed in its soon-to-be released report into interest-only home loans - and it could prove to be good news for brokers
An ASIC executive has hinted at what will be revealed in its imminent review into interest-only home loans - and it could prove to be good news for brokers.
As part of its IO review, which was launched last April, ASIC closely examined 300 loan files from lenders and brokers in relation to how well they were meeting the requirements and objectives of customers. ASIC also looked at whether appropriate inquiries were being made and if information was being properly recorded to ensure that the right loans were being provided to these customers.
While the review should be made public in the next few weeks, ASIC's Chris Green, group senior manager of credit, gave the Responsible Lending and Borrowing Summit a brief overview as to what's to be expected.
“I can say some things about our findings as a preview for you: the standard has continued to improve, that’s a really encouraging message," he said.
In 2015, when ASIC conducted its first review into IO lending, approximately 30% of files reveiwed had no information or record of the requirements and objectives of the customer, he said.
Compared to ASIC's current review, only "a handful" of the 300 files were considered poor, he said.
“The great majority of the loan files are pretty good and there seems to have been an increase in standards by the industry, perhaps some notice was taken of our review in 2016 of brokers where we did set out in some detail examples of good practice as well as [poor] practice.”
Green said ASIC observed several examples of good practice from these loan files, including that the loan had been specifically customised to meet the borrower's specific needs and clearly described what would happen when the loan would switch over to P&I. The regulator also saw good examples of detailed records that matched the consumer's objectives.
In regards to poor practices observed among those handful of files, Green said there are still problems with poor record-keeping and notes that are too short and ambiguous to understand. There were also a couple instances where there was no adequate disclose about the increase in loan repayments following the end of the IO term.
"Generally, the picture was that the explanation for 'here's the loan, and this is why you've got the loan' matched up. In those 300-odd examples, it looked like the requirements and objectives of the particular borrower were met by the loan," Green told MPA.
Background on ASIC's latest IO review
Last April, ASIC announced that it would be doing a review of interest-only loans to examine if lenders and brokers were providing IO loans to owner-occupiers in inappropriate circumstances.
The regulator released some initial public statements last October regarding its findings, namely that:
- Borrowers who used brokers were more likely to obtain an interest-only loan compared to those who went directly to a lender
- Borrowers approaching retirement age continue to be provided with a significant number of interest-only owner-occupier loans
