Minor panic related to new legislation... help

[Samwise]

A brief synopsis of my situation:

2 x good incomes, wife just preggers with no.2, looking to trade up PPoR. To put ourselves in a good position to make cash offers on next PPoR we put our place on the market. Sold in 8 days (accepted offer yesterday)

Wife goes on maternity leave in July (for 9 months) - we HAVE to buy our next place before July. We need both salaries for borrowing power and repayments but have plenty savings which will help tide us over her period of leave and we have my salary only.

Today my broker tells me that new legislation came into effect from 1st Jan that you have to declare if there is "anything in the future you know of that will affect your ability to make repayments" (or similar words)...

Will most lenders be OK with the fact that my wife will be having a temporary break from work, or are we in the ****?

 

[agent007]

Today my broker tells me that new legislation came into effect from 1st Jan that you have to declare if there is "anything in the future you know of that will affect your ability to make repayments" (or similar words)...

I really don't understand the issue You mentioned in your post that you have sufficient funds to purchase and service your loan. So, how your wive going on maternity leave affects your capacity to service your loan if you already have the money? As written by you, the legislation doesn't say that you have to inform when your wife gets pregnant and going into maternity leave. It just refers to your capacity to meet your financial commitments. Am I missing something?

 

[Samwise]

Yes you're missing something. We now have to declare that my wife will have a period of not earning and therefore no salary... we didnt before

I feel that we are borrowing responsibly, and within our means... i'm just wodering if the banks will see it that way.

We sold our house (our financial security) YESTERDAY!!!!

 

[Token Funder]

Yes you're missing something. We now have to declare that my wife will have a period of not earning and therefore no salary... we didnt before

I feel that we are borrowing responsibly, and within our means... i'm just wodering if the banks will see it that way.

We sold our house (our financial security) YESTERDAY!!!!

Under the NCCP funders and brokers have to take reasonable steps to ensure that they don't knowingly put you not in debt that would create hardship. The new legislation creates a specific obligation to consider known/likely future changes to income or expenses.

A forthcoming birth covers both bases.

The bank will want to be sure you can service the loan under your new circumstances, as well as the current.

 

[Samwise]

The bank will want to be sure you can service the loan under your new circumstances, as well as the current.

Hmm... well we've satisfied ourselves but that counts for nothing... I wonder how onerous they'll make it for us

 

[The Sniffer]

The law is not that specific and interpretations vary. Lenders and brokers need to be responsible and insure you can service the loan. I can't see any problem with these deals on the following basis;

1. You pass servicing on current income
2. You have cash (your own - not borrowed) to see you through say 12 months of your wife not working.

The law does not specifically state how to treat maternity leave. Banks can still weigh up an application on it's merrits and choose to approve or decline the application.

 

[Dazz]

Hmm... well we've satisfied ourselves but that counts for nothing... I wonder how onerous they'll make it for us

Hi Sam,


The good thing is you'll be left wondering until the very last moment when the verdict comes through from the Sydney dark room black box known as "Credit".


Don't worry about asking or understanding, or doing your own calculations. If you probe deeper the standard response is "it's a very complicated algorithm, a little too daunting really for you to grasp". The much cleverer folk in the dark room will work it all out for you and let you know about 2 or 3 weeks after your deadline when you really needed to know.

 

[Samwise]

Well, thats comforting then

(sounds a bit like how they calculated my last pay rise!)

My broker is contacting some lenders so i guess we'll see... thanks for input

 

[Amadio]

I would have put it in the don't-ask-don't-tell category.

Poor little banks get all confused with too much information.

 

[Ms Jade]

Today my broker tells me that new legislation came into effect from 1st Jan that you have to declare if there is "anything in the future you know of that will affect your ability to make repayments" (or similar words)...

I know i should stop being lazy & try to look it up, but can anyone post the exact wording? I would think on this wording that you could sensibly not say anything, given that you know that you CAN make the repayments. The trouble may be that if anything goes awry and/or the bank finds out that you withheld this info they may interpret this clause differently. I wouldn't want to be facing the expense of arguing for my interpretation in court.

 

[Samwise]

At the end of the day the Mrs gets 3months pay as maternity leave from her company... we could just say she's only having 3 months off (or 6m half pay)...

 

[jonmardell]

If you can service the loan today and have a solid plan about when your wife will be returning to work and has a stable employment with her current employer and you have enough cash to tie you over for that period then i think that would comply but because the rules are so new it really is going to come down to the individual credit assessor.

 

[peaches]

I am not so confident - the main problem is that the legislation is very new and no one knows how heavy handed ASIC will be in their auditing. So it's not just a case of 'if something goes wrong' although that has to be a major consideration (not wishing anything on you) - but the new legislation is going to be audited and so a breach can exist even if there are no victims.

As a result everyone has to be very - very careful.

As for a 'don't tell' attitude then you have a duty of disclosure and if something were to go wrong you would be found out and could be in trouble.

The new consumer protection laws - like so many regulations end up working to protect the intellectually challenged at the expense of the rest of us. Good luck.

 

[The Sniffer]

I think you are looking to far into it. I would be surprised if your bank did not do it.

 

[Rolf Latham]

I think you are looking to far into it. I would be surprised if your bank did not do it.

And I think thats a core difference............a long term broker with a decent sort of biz isnt going to risk loss of licence, vs a banker under volume pressure might lose their job.

Again this last week 2 full doc files on our table that we could not accept.

Sent one of these clients to their local branch and presto ...........700 000 of "other bank " liabilities dissapeared. There is nothing new in this, there have always been times where in some cases a client has been "better off" going direct.

So, in short the broker will usually dig much deeper because they are under a much greater onus of "proof" than the direct channel.

ta
rolf




ta
rolf

 

[The Sniffer]

And I think thats a core difference............a long term broker with a decent sort of biz isnt going to risk loss of licence, vs a banker under volume pressure might lose their job.

Whets the difference?

There are brokers that are starving for a deal and need commission to pay their mortgages and there are bankers that are starving for a deal to keep their jobs. Both have a lot to lose if they lodge dodgy deals.

I don’t think this scenario is about not disclosing debts or lying to get the deal across the line (which happens in banks and with brokers). It is not even just about maternity leave.

The real question is can things like this be mitigated to a lender if the deal is prepared properly and the appropriate discussion is had with the client.

Can banks still approve these deals under NCCP with all the facts on the table?

The NCCP does not go in to detail as to how to assess a loan. It regulates the lender must be responsible, insure the client can afford the repayments and not offer an unsuitable product.

As this scenario includes cash savings to see them through the Mat leave, another full time income, only 3 months unpaid etc; I think it would be fine. It will be up to a credit manager to decide.

If it was a 90% lend with no cash savings and potential default when in mat leave it should be declined.

Your scenario defiantly does not constitute an automatic decline.

 

[RumpledElf]

Today my broker tells me that new legislation came into effect from 1st Jan that you have to declare if there is "anything in the future you know of that will affect your ability to make repayments" (or similar words)...

What??? You've got to be kidding ...

I'm getting knocked back for finance because I live in a house that is FOR SALE, and will either sell (for more than I want a loan for) or rent (for more than its repayments) but the bank in question refuses to accept this - they need to count ALL our debt but no future changes. Result being the current plan is to go with the bank who'll give us $40k and hit my parents up for a short term 'gift' for the rest to get us over the line, although I haven't run this past them yet as they charge $1000 to make an appointment with a lending consultant.

Other banks are refusing to accept SOME of our income but are more than happy to assume our expenses are double what they really are, again not letting us get a loan.

Where is a copy of the legislation so I can wave it at them? We can afford a loan. We can prove we can afford a loan. We have full records of our incomings and outgoings. We intend to clear the damn loan within a few months. Its like they are taking the worst of their old rules and adding the worst of the new rules.

Can you actually go into a regular ordinary bank with full proof of your income and expenses and talk to the manager and get it approved or does everything have to go through the computer?

 

[Dazz]

Can you actually go into a regular ordinary bank with full proof of your income and expenses and talk to the manager and get it approved or does everything have to go through the....

Black box room known as CREDIT.

AFAIK, the controlling solicitors for each Bank have completed stripped all decision making authority from all levels of management and bestowed it upon the black box room boys. Everyone else out in the branches simply packages everything up into a nice neat format for the CREDIT boys to assess. The computer does 99% of it I'm told. Of course, I've asked to speak to these faceless credit boys, in an effort to negotiate, but all the Managers admit they are a bit of a strange bunch, and actively discourage them from mixing with the public.

Had lunch a few years back with a credit guy (aged 28 and looked like a nerdy geek) once from ANZ, accompanied / chaparoned by the ANZ business banking manager (normal bloke about 50). We got talking.

The credit guy was just married, had his first bub on the way and lived in a 350K PPoR with a 270K ANZ mortgage at special low interest rates cos he worked for ANZ....no other assets to speak of. Most days he sits in a dark room crunching numbers into a "model". The algorithms that drive the "model" are confidential and subject to change all the time.

The business banking manager had assets coming out of his ying yang and was a wise, wealthy investor.

The credit guy had the ultimate say, the business banking manager had none. It didn't sit right with me, but that's what the Banks have set up.


My local Westpac branch makes a big song and dance about how they have 'empowered' their local Managers, as apparently the feedback they have received from their customers is that is what they want. Alas, when you get into conversation with them, it takes all of about 6 seconds for them to say, "I'm sorry Sir, I cannot authorise that".

You simply keep asking questions, lowering the $ request every time, and keep getting the same "I'm sorry Sir, I cannot authorise that" response until you end up somewhere between a pencil and a stapler. The pencil is OK, but the stapler requires the 2IC to countersign the manager's signature.

 

[Peter_Tersteeg]

Credit weenies are a weird bunch Dazz, I can't agree with you more.

The lenders tell us that the black boxes look at all sorts of factors, both hard and soft. The bar which you have to reach (or not trip over) can vary from one applicant to the next and it can change over time (if the bank decides they're over exposed to high LVR loans for example).

The first phase of getting a loan approved is your info goes into the black box for 'credit scoring'. Whilst experienced brokers and bankers can speculate about what's really in there, it's never fully disclosed to anyone. The results are usually:

1. all good, just verify the data against the documented evidence - in most cases this doesn't even end up before a credit officer, just a processing person who ticks and flicks.

2. looks okay, but demands further scruteny from a credit officer. My experience (at the moment) is that they are looking for ways to approve loans. It can be a bit more painful, but you usually end up with the right result.

3. not good, reject the application. Sometimes in certain circumstances, the computer decision can be appealed and reviewed by a credit officer. A few lenders however have decided that given 80% of these applications tend to go back, and it takes a huge amount of effort to get the other 20% approved, they'd rather not bother at all. Either way it's an up hill battle.

Not all lenders use credit scoring as their gate keeper either. Most of the smaller lenders don't use it, but everything does end up in front of a credit officer after the initial assessment. Interestingly, these lenders tend to be more conservative than the lenders that use automated scoring. They also often take longer to approve loans.


As for the NCCP and future maternity leave, if you've planned properly for this to manage the reduced income for the appropriate period of time, and then the increased costs after that, then this needs to be properly explained to the credit officer. I personally don't see it as a big problem to borrowers if they've planned properly. If they haven't planned for it, then perhaps they shouldn't be borrowing the money?

 

[Token Funder]

*snip*.

Where is a copy of the legislation so I can wave it at them?

*snip*

Our good friends at ASIC provide a regulatory guide which I can tell you for a fact is what all the lenders have used to drive their decision making given the very broad wording in the Act/Regs themselves.

You can find it here but the relevant bit is their guidance as to what reasonable enquiries may need be made and taken into consideration prior to making an offer of credit, including (but not limited to):

(h) any significant changes to the consumer’s financial circumstances that are reasonably foreseeable (such as a change in repayments for an existing home loan due to the ending of a ‘honeymoon’ interest rate period, or changes to the consumer’s employment arrangements such as seasonal employment or impending retirement)

Have a read of the whole thing and consider what changes might occur to a bank's risk appetite given your credit licence is at risk should there be systemic breachs