ASIC recently released report 410 on its review of low
doc home lending following the introduction of responsible lending
In conducting its review ASIC reviewed 12 credit licensees of
varying sizes representing a broad cross-section of businesses
active in providing "low doc" home loans.
Click here to review the report.
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What could be of interest to lenders is the additional guidance
given by ASIC in the reports appendix. It suggests steps lenders
can take to improve compliance with their responsible lending
obligations, in particular with regard to "low doc"
loans. The appendix also has general application and that is why it
is important for all lenders to consider how the report impacts on
their responsible lending practices.
Examples given by ASIC are:
Lenders need to have clearly documented procedures as to what
they will require to assess loan applications, including
circumstances in which applications should be escalated to more
Where lenders rely on information from third parties to make
the assessment of "not unsuitable", give customers
details of the information obtained and relied upon, make a
realistic assessment of whether further verification or review
should take place and importantly follow up any materially
inconsistent information directly with the customer.
Focus on the customer's requirements and objectives, in
particular with regard to what are the reasons for putting the
customer into a low doc loan, other than
"self-employment". This is particularly the case where
the interest rate is higher and the loan has less features than
other loan products offered by the lender. The suggestion is that
"self employment" of itself may not be a sufficient
reason to place a customer in a "low doc" loan.
Where obtaining statements from accountants ensure that the
statement not only contains the required information, but
tailors that information specifically to the customer,
properly identifies the accountant and his/her professional
is free from disclaimers about the accuracy or reliability of
Focus on the longevity of the relationship between the
accountant and the customer, taking particular care where there is
only a short term relationship between the accountant and the
Do not rely on standard business expense ratios or income
matrices alone, but focus on how they apply to the customer's
Enquire into and verify variable expenses and in particular the
customer's ability to reduce those expenses in order to make
Obtain both consumer credit and commercial credit reports
Ensure there are adequate buffers for change in financial
circumstances and a surplus income position.
Do not treat all sources of income as the same for assessment
The guidance issued by ASIC in appendix of report 410 should be
reviewed by lenders, because in our view it has general application
to all types of lending.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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