Hi Vic
well rounded post.
On the above, what type of stricter legislation will help here ?
Some legal interps of the NCCP are.........
1. You cant lend to a single female of child bearing age unless she has 5 % plus buffer and/ or parental or spousal support.
2. Lo doc lending without external evidence of income is not possible
3. Borrowers over ~ 45 on an average income can not not be provided a PPOR housing loan for a median city property becaue they cant fully pay it off before notional retirement age
The legal firms have come back with a bunch of other permutations of what the NCCP means for the secured lending industry, and while some may look silly, full compliance of the NCCP seems near impossible as it stands.
Other ideas such as making defs "illegal" look like a good idea, but in reality may favour large multi product financials more than wee mortgage only lenders.
ta
rolf
Nice to see I am not the only nerd talking NCCP at 130am.
Re 1,2 and 3 I think a few people are looking too far in to the legislation.
1 - Single female. Under NCCP you need to have the conversation and most importantly document your conversation.
If someone says they are going to have children the within 12 months - you should be asking how they intend to survive financially and take that in to consideration when you present your solution. If they say they are not planning to have kids in the 'short term' make a file note and record that you have had the discussion.
2 Lending without financials. The NCCP says you must ensure a client can service a loan. It does not state how you must demonstrate servicing. For example: some lenders will still lend on a declaration, some will ask for BAS etc. The major banks generally look only at turnover when they collect BAS. In some cases a declaration can be 90% of turnover which in many industries is impossible (COGS might be 30% but you can still declare 90%).
There are also some private lenders promoting loans in company names as it avoids NCCP. Considering it only costs $400 to start a company there are loopholes and they will be exploited.
3 Borrowers over age 45. Some lenders want the debt amortised to within 30% of original loan. Some just need verification the client has sufficient super to be able to continue to pay or clear balance. Some lenders will also assume a pen pusher e.g. accountant can have a retirement age of 85. Once again you need to have the discussion and keep notes - just like a financial planner.
You asked about stricter legislation and what might help. A couple of ideas are:
- MAX90% LVR - enforced by APRA / ASIC
- First Home Buyers to 95%
- Reserve Bank Variable Range lenders must be within (allows independent movement however blocks high risk/high return lending and also low margin lending which is too risky for lenders)
- Ban of property investment groups selling /referring finance (conflict of interest)
- Ban on referral commissions (banks and brokers paying real estate agents etc)
- Low Doc loan declarations to be provided to ATO to ensure customers declare only realistic declarations
I also think the industry needs to work on a NIL upfront and Higher trail basis (charge say $500 processing fee). This would mean brokers are paid to keep their clients and service them rather than collecting a big lick of the ice cream each time their customers move lenders.
In case the broker commission part sounds unfair - keep in mid someone writing 2M per month at 0.25% trail would be on 60k after year one. 120k year two and so on. Many give their upfront to real estate agents / investors clubs to give them deals so if no referral fees were allowed it would not hurt.
Trail is a payment for servicing clients. Not an entitlement for placing the deal.
A broker on 20k trail per month does not have the same incentive to write a dodgy deal as a poor broker does when they need to large up front to pay their own bills and their referrers.