"Today common sense has been removed and is no longer applied when making lending decisions"
By its very nature a pendulum swings in an arc, moving from its limit on one side to its limit on the other and then back again.
When the limit of the arc is not equal on the two sides, it is said to be “out of beat”.
This is the position we brokers now find ourselves in.
From a time when there was no attention paid to a borrowers’ living costs, other than limiting loan repayments to a set percentage of income, the pendulum has now swung completely to where we are today having to minutely analyse every aspect of a borrower’s life, including how many cups of coffee they purchase in any given week.
There would seem to be no allowances made in regard to the discretionary nature of some expenditures made by a potential borrower. In far too many assessment areas of the various lenders, there is a palpable fear that failure to take into account that an applicant may have a superior monthly Foxtel subscription, rather than the basic minimum subscription, might result in the approval of a loan when it should have been declined for failing servicing.
I don’t believe for a second that a home owner would default on their home loan in favour of paying their Foxtel subscription, or buying their daily coffee fix. To think otherwise is sublimely ridiculous.
But this is what we now have, and as a broker, I find myself asking, “Who is behind these changes?”
One might say it is ASIC as the industry regulator, but that is not correct as ASIC is merely an organisation, so it must be the people working within the organisation who are introducing these requirements.
This in turn leads to the next question, “What experience do these people have in lending, such that they have the qualifications and experience to set lending guidelines?” Or is it a case that they simply apply their own prejudices and failures in balancing their own finances by implementing a one-size-fits-all approach to lending?
These changes have now created a whole new group of home loan borrowers that are being called “mortgage prisoners”. People who have been managing their finances for years, yet due to changes in their circumstances can no longer be assisted in moving to a lending product that is better suited to their present situation.
In what universe does some form of insanity exist whereby you can tell someone currently repaying a loan at say 5%, that they can’t afford to repay the same loan at say 4%?
What we have now are unintended consequences.
The NCCP Act was not designed to create these problems, but rather to ensure, amongst other things, that there was a high degree of responsibility in lending. This has been expanded to ensure that customers receive a good outcome in respect to borrowing.
The Combined Industry Forum has been working diligently in this regard to formulate guidelines for brokers to follow. This is all well and good, but this alone will not return the pendulum to the middle.
Historically, lending was based on the 5 C’s: character, credit, capacity, collateral and lastly, common sense.
Today common sense has been removed and is no longer applied when making lending decisions. This has been replaced by boxes that need to be ticked.
The pendulum has swung too far and needs to be moved back towards the middle; but who is going to make that happen?
Certainly not ASIC, as they have demonstrated a complete lack of understanding when it comes to lending. Certainly not the lenders, who appear to fear the wrath of ASIC. Not our industry associations despite all of the good work they do. Not the aggregators because it is not their role.
The only way that the pendulum will be brought back to equilibrium is for the people, who are the borrowers, to rise up, to complain long and hard to our federal politicians demanding a more equitable way of lending. There must be an acknowledgment that the majority of people will honour their home loan commitments and adjust their lifestyles to ensure they meet their mortgage repayments.
Currently, lending in this country is out of beat.
Stephen Dinte is a steering committee member with the Independent Finance Brokers Forum. For more information on the group, visit: www.ifbf.com.au.
