Goodbye Lo Doc and No Doc

[rastus2]

Actually, Mofra, only a very small percentage of loans are fixed.

I have a high percentage of customers who fix part or all of their loans, but I am literally way above the national average and I do mean way above.

I guess this reflects the amount of time I spend with a customer, whereas most borrowers get a pamphlet and 'sign here' and don't get any real explanation about loans or the opportunity to discuss how to manage them.

The fixing of the rate usually fixes the product, so if someone has spent a bit of time choosing a nice, flexible loan, they won't want to fix the darn thing and lose their deposit / redraw facility.

As with anything, price has little impact in the long term. We all want to have control over our finances, and fixing removes much of that control. In my experience, people don't fix because of the rate, but because of budget control. However, two , three or five years is a long time and much can happen in that time, making hindsight a wonderful judge of the wisdom of fixing the rate.

By the way, Pete, as you know Choice and other aggregators have recently tightened up membership requirements - the industry seems to be quite determined to be somewhat more regulated than any government requirement would impose. However, to the best of my knowledge actual complaints against brokers are few and far between. Perhaps that also indicates the quality of the customer - brokers tend to have experienced customers and / or customers who are prepared to research and ask lots of questions. I was at a seminar recently and the presenter said that by the time a customer has clicked 'enquire now' they have spent as much as 40 hours on the various websites and have a fairly good idea of what they want and are usually very well prepared for the loan interview.

This is quite different from, say, the 'typical' bank customer who has always banked with the Bandewallop Credit Union and simply walks up to the enquiry counter for their home loan. They do no shopping around as they wouldn't want to hurt the feelings of the nice customer service officer by getting their home loan from somewhere else.

There are many influences on a customer, no matter what that customer is buying. I always believed that they only thing we 'buy' are postage stamps, but now I can see that they are 'sold' to us, too.

Cheers

Kristine

Um.. .Kristine, I have no doubts that your books are looking good... but RAMS business model is looking quite unstable. (As you know, Non-Bank lenders are getting squeezed).

http://www.asx.com.au/asx/research/...de=RHG&TimeFrame=D6&compare=index&indices=XJO

I do not see a good future for them as far as their margins being able to withstand continued pressure... either rates for RAMS borrowers must rise or RAMS will fold.
(Share owners want to see a return for their investment).

Just calling it as I see it.

 

[Peter_Tersteeg]

Worth noting that Westpac have started the process to purchase RAMS. RAMS has already passed the first due dilligence stage with Westpac. I doubt they'll fold at this point.

 

[alexlee]

Yes, but westpac is only buying the brand name and branches. It's not buying the actual loan book itself, which is interesting. It suggests Westpac doesn't like the RAMS loan book, and thinks it can make better loans going forward.
Alex

 

[BoatBoy]

Rams have told me they are signing up new loans but they arent being settled till (I think) the 16th of next month) when Westpac tips in some money.

I was told that they (Rams) will be offering a good rate on 3 year fixed as of Monday (still a shocking rate on 5 though)

I was also led to believe that the rate hikes that RAMS have been passing on recently may be pulled back (I won't hold my breath).

This was my interpretation of what I was told and when hit with the direct question it was answered in a round a bout fashion.

Dave

 

[Rixter]

We are settling on another RAMs No doc next month......no problems to date...No Doc 80 variable is 8.5%.

 

[Glucose]

We've just had a low doc RAMS 85% loan settle - no problems. Pretty happy with them. Only one little thing niggles me about RAMS, and that is that instead of payments falling due on the same date as settlement happens each month, they all fall due on the last day of the month. I find it much easier if all my IP loan repayments are staggered throughout the month, but as four of ours are now RAMS ones it makes the end of month "top heavy"!!

 

[Peter_Tersteeg]

One of my clients has a settlement with RAMS on Tuesday.

 

[alexlee]

The issue is what happens to the rates on those loans if RAMS has any further issues rolling over its financing, isn't it?
Alex

 

[BoatBoy]

The issue is what happens to the rates on those loans if RAMS has any further issues rolling over its financing, isn't it?
Alex

Absolutely, I was speaking to them about getting some loans away from Aussie and HSBC/FirstMac as I am sick of the lack of grey matter there.

RAMS said they'll gladly take it on, but for the reasons mentioned I've asked them to shop it around.

Like Aussie and Firstmac, Rams don't have a fixed rate loan with a LOC off to the side,as a just in case.

Anyone know who may?

Westpac do, but don't want to give ALL of the loans to them if we can help it.

Dave

 

[WinstonWolfe]

Well, BANG...................

that's mobius and macquarie out of the res no doc market.......

does anyone want to predict a no doc bottom?

or what lending criteria will be for lo doc on 12 mths?

 

[Rolf Latham]

I feel the worst case is we will be back to where we were like 7 or 8 years ago.

Solicitors and /or private mortgages.

65 % lvr generally max at normalish rates with a small margin.

ta
rolf

 

[WinstonWolfe]

well who would have thought.............

Low-document loans are dead, says John Symond

Anthony Klan | September 20, 2008

AUSTRALIA'S biggest mortgage broker has declared the controversial "low-doc" home loans dead as lenders flee from high-risk products amid the disaster in the financial sector.
Aussie Home Loans founder John Symond said the proportion of low-doc loans -- home loans with little or no proof of a borrower's ability to meet repayments -- written by the broker had plummeted from 15 per cent to an "insignificant" level below 2 per cent.
"The major lenders still have low-doc loans in their suite of products but it's more for window-dressing because trying to get a loan approved is now virtually impossible," Mr Symond said.
"Our people won't even go there because it's a waste of time. This is the death of the low-doc loan."...................................

 

[MC1]

The statistics for defaults are something like this:

Regular full doc: 0.5%
Lo doc loans: 0.75%
Non confirming: 5%

The lo doc loans aren't the problem, it's the people who have credit problems who are taking non-conforming loans to solve their debt problems. There's a few realities that need to be considered for the regulation:

1. 95% of Lo doc loans are not the same thing as US sub prime loans.
2. Most Lo doc loans are not generally used by low income borrowers but the self employed, in most cases borrowers have a 20% or higher deposit.
3. Mortgage brokers do not approve loans, they match customers circumstances to lenders policies.
4. Most mortgage brokers already meet the proposed educational and disclosure standards.
5. Most people get into trouble because they continually take credit card limit increases, hire/purchase agreements and personal loans. All of which are unregulated.

I'm happy for the government to introduce stricter standards as most brokers already meet them and it'll get rid of some of the bad eggs (which there are in every industry).

To solve the problem, the government really needs to take a look at the lenders who are throwing money out the door without appropriate risk assessment policies. Tighten the belt on consumer lending.

90% of the defaults I've seen on credit reports fall into the following categories:

1. Telecom bills
2. Store credit
3. Credit cards
4. Personal loans

These are the areas which really need to be addressed. The other sector which needs to be addressed is bank staff who cut corners to meet unrealistic sales targets.

Great post BT,

someone I know recently required a loan, but was only on a part time income and was unable to service.

Obviously I was unable to to write the loan for him, but a personal banker at CBA was quite happy too, and even told him what to write on the fake employment letter word for word.

Whilst you would still get this from a small percentage of broker originated loans, most value their businesses too highly.

 

[Peter_Tersteeg]

Great post BT,

someone I know recently required a loan, but was only on a part time income and was unable to service.

Obviously I was unable to to write the loan for him, but a personal banker at CBA was quite happy too, and even told him what to write on the fake employment letter word for word.

Whilst you would still get this from a small percentage of broker originated loans, most value their businesses too highly.

MC1, I know exactly what you mean. I've seen this happen on mulitple occassions.

I know of a case where a person approached me (through this forum) saying they no longer had the money to service their portfolio. They'd been using the equity for a few years and it was all gone, they had no way to hold onto their house. The loan was set up by a personal banker with a major lender.

I have no problem with using equity in this way, but there has to be an exit strategy, it's not something that is sustainable when you've only got a few properties.

I also disagree with John Symond. There's still plenty of justification for lo docs and there are still plenty of lenders offering them. The criteria are tightening up (as they needed to) and the rates are rising in line with the increased risk to the funder (also as required).

They are a long way from dead though, and I think the current market is simply a re-alignment and again, this period of the cycle serves to get rid of the dead wood.

 

[Peter 14.7]

I always thought Low Docs were questionable "flash in the pan" products.

Why?

Question: Why pay more interest per month if you had the docs to prove you could pay less.

Answer: you don't the docs because you are:

slack with paperwork = poor managers
black market economy = hello ATO
hiding income form ex wife/husband = hello Family Court
lacking money = hello Mortgagee Sale

It does not add up.

When something quacks like duck, walks like duck and swims like a duck, it aint a pig. It's a duck.

Peter 14.7

 

[Rolf Latham]

Hiya Pete

Those are some valid points

To show some examples where there are "genuine" reasons for the use of lo docs

1. Most of the lenders dont like cap gains as "income" though the ATO doesnt mind you paying your income tax. With some lenders this can even extend into the treatment of share traders.
2. Clients with great current year financials, but cant show 2 + years worth due to growth
3. Clients that are "rent reliant". That is they have say 20 IPs and one job, some lenders just dont like that much rent coming in
4. Overseas sources of income
5. Some clients simply cant be bothered to provide 2 years of financials for 5 different entities.
6. And then all the things you have listed as well

ta
rolf

 

[Peter 14.7]

Dear Rolf

I stand corrected and wiser with your knowlege

Thanks Peter

 

[moyjos]

Hiya Pete

Those are some valid points

To show some examples where there are "genuine" reasons for the use of lo docs

1. Most of the lenders dont like cap gains as "income" though the ATO doesnt mind you paying your income tax. With some lenders this can even extend into the treatment of share traders.
2. Clients with great current year financials, but cant show 2 + years worth due to growth
3. Clients that are "rent reliant". That is they have say 20 IPs and one job, some lenders just dont like that much rent coming in
4. Overseas sources of income
5. Some clients simply cant be bothered to provide 2 years of financials for 5 different entities.
6. And then all the things you have listed as well

ta
rolf

Agrred Rolf,
Some of the reasons we use lo doc

1: (your list item 2.) Our business varies year to year depending on what we are doing. (Banks don't businesses that flucuate up and down..they like boring ... so that is what we tell them)

2: We have reno-ed a house and that is the bulk of a deposit. (in other words not a regular saving history)

3: (Usually the main reason) we live on less than the bank says we should I KNOW what we can afford and ALWAYS do my calcs on +2% of the going rate. (That is my sanf) We have had "spoilt brat little johnny upstart bankers" tell me "oh you can't live like that".. Stuff 'em ..we can and do

Basically lo-docs fill my need to get ahead - it is just a way of playing the game their way.

Cheers
Sue

 

[Maverik]

It can also be very useful instead of bridging finance.

 

[Rob Williams]

3. Clients that are "rent reliant". That is they have say 20 IPs and one job, some lenders just dont like that much rent coming in

That's the one they hit me with. "You're very rent reliant". Gee guys, ya think? It's a RENTAL property portfolio. What else is it going to be reliant on?
Someone told me they roll that one out when your rental income exceeds your job income.
Given the current rental situation, I've got a greater chance of losing my job than having a vacant property right now.
For my first few loans, I never heard them say I was too "job reliant".
I'm sure it makes sense to the Bankers. Did I spell that right?