Minor panic related to new legislation... help

[Token Funder]

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.

Still don't understand why you're wasting your time in commercial property Dazz when you couldsell up and make a motza applying your newly released cash and kick-**** credit and risk-management skills to the lending caper

Carpe diem, my son, carpe diem!

 

[FormerLurker]

Wouldn't this only really become an issue if you cannot service the loan? If you have planned and have the capacity to service the loan as you indicate I imagine no one will care - I believe this is reffered to as the no harm no foul policy

Also you wifes temporary non working status is not income free status since she gets paid maternity leave - so this would only become a problem if she intends to not return to work for a considerable period of time would it not?

Anyways all the best with the new bub and congratulations.

 

[RumpledElf]

that stuff Dazz said

That has got to be one of the best explanations of how bank credit works I've ever seen.

 

[Rolf Latham]

Wouldn't this only really become an issue if you cannot service the loan?

not what the legal people have told us.

There needs to be no actual issue, in fact the breach WRT to writing an "unsuitable loan" is not at the time it becomes an issue for the borrower, its at the time the broker makes a decision that the client should be ok because they have XYZ to mitigate the risks.

Here we end up again as to what is a reasonable enquiry.................there is no definition. You are on your own.

ta
rolf

 

[Samwise]

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.

I'm with Rolf on this - my broker will want to completely remove himself from all risk, whether we feel we've planned effectively or not.

So far he has told me that Bankwest have said we will be OK with 3 months maternity leave as long as they get it in writing that her company will be paying her during that time... CBA, Westpac and Choiceland(?) have said that they will not take my wifes salary into account in working out our borrowing capacity - Crazy!

And worrying.

I can see us applying for our next lot of finance directly, and taking the risk ourselves with whatever we do/dont decide to disclose...

 

[joanmc]

Couldn't you use some form of anti-discrimination with this? I mean your wife is gainfully employed, she is not retiring, she is taking paid leave, how is it different from someone taking say 3 months long service leave? Ok I know it's different because there is a new baby. But what would be the case if a man took 3 months long service because his wife was having a child-would they still count his wage?

 

[rugrat]

talk about setting equal rights back years. Now the onus is on the mother to 'prove' she will only take a limited amount of maternity leave - which I think is real interesting considering the banks won't take into consideration the baby bonus (not sure about the govt maternity allowance) because it only exists for a limited period of time.

 

[Rolf Latham]

Couldn't you use some form of anti-discrimination with this?

Sometimes, well meant but fresh legislation has "unintended consequences"


gets better

try being a single young unmarried female without a decent cash buffer after deposit and costs, or parental or "spousal" support

try being over 45 to 50 ish after a marriage split with 50 k and get a decent mortgage.............

and there are many others that will come out of the woodwork in the next 12 mths.

We may see some specific exlusions where some of these issues are concerned, but until the legislators step up with more defining legislation its not going to get better.

ta
rolf

 

[rugrat]

and the worst part is those who are discriminated against are going to be those people that don't have the resources to challenge this legislation in the courts, and those with the resources aren't going to bother challenging it because it doesn't affect them.

 

[The Sniffer]

Sometimes, well meant but fresh legislation has "unintended consequences"


gets better

try being a single young unmarried female without a decent cash buffer after deposit and costs, or parental or "spousal" support

try being over 45 to 50 ish after a marriage split with 50 k and get a decent mortgage.............

and there are many others that will come out of the woodwork in the next 12 mths.

We may see some specific exlusions where some of these issues are concerned, but until the legislators step up with more defining legislation its not going to get better.

ta
rolf

I'm sorry but I'm a bit dumbfounded. Of course lending to someone about to retire, or someone entering mat leave, or someone planning to leave their job has issues that need to be addressed more than they did previously. But I feel like you are all on a bandwagon of doomsdayers interpreting an exaggerated form of the legislation.

Put my opinion of it all aside.

These are all issues that need to be addressed in an industry where previously the risk could be ignored in a customer beware enviroment. Now you need to actually have some understanding of risk assessment and the position you are putting your client in.

All these issues can be mitigated for the right clients if you understand some traditional and proper risk assessment.

If someone is about to retire: do they have capacity to continue to meet their commitments without their income - do they have cash, super and other assets to sell to achieve their goals - mitigate the risks and dont put them in the sh@t and you are OK.

If someone is entering mat leave; do they have capacity to cover their expenses and meet their commitments without foreseen financial hardship - assess it correctly and you will be OK.

If someone receives seasonal income then take it in to consideration when recommending your propossed structure.

The new legislation will make sure more care is taken and that brokers / lenders are capable of idenitfing risk to their clients.

I think banks, ASIC and the gov are on track with one thing; it will cull the inexperienced bankers and brokers from the industry

The banks are still writing all the deals listed above. The only difference is a proper risk assessment needs to be completed and that is beyond the capability of the average broker and banker in the industry.

This is the end of the finance salesman and the beginning for the financial professional.

Snif Snif... It's all good...

 

[TheShuffler]

Interesting - I just went through this today. The exact wording I was asked was "are there any circumstances or changes in your situation over the next 3 years which will have a detrimental effect on your ability to meet the loan repayments".

This was the banks wording therefore I would say that puts the onus back on me. Um...my wife is pregnant and I'm planning on having another 2 babies in the next 3 years and I still believe I can meet the mortgage repayments, then my answer to the question would be 'no' and hence we move on with the application.

Maybe different financiers will word there questions differently however those who still want to write mortgages will construe it in such a way that the liability sits with the applicant.

 

[Samwise]

... "are there any circumstances or changes in your situation over the next 3 years which will have a detrimental effect on your ability to meet the loan repayments"

This was the banks wording therefore I would say that puts the onus back on me.

Shuffler - which bank was this?

My answer would be 'no'... clearly we will not take on a mortgage we cannot pay, but i can appreciate there are idiots out there who will try to

 

[Samwise]

The banks are still writing all the deals listed above. The only difference is a proper risk assessment needs to be completed and that is beyond the capability of the average broker and banker in the industry.

Are they still writing these deals? As i said above, we were just turned down (in principal) by 3 lenders with seemingly no risk assessment or further questions - and we're only losing one salary for 6 months

We could have $500K savings but no questions were asked???

 

[The Sniffer]

Are they still writing these deals? As i said above, we were just turned down (in principal) by 3 lenders with seemingly no risk assessment or further questions - and we're only losing one salary for 6 months

We could have $500K savings but no questions were asked???

Out of the 3 lenders you mentioned I think 2 would do the deal for the right client/broker. I've recently placed two deals with one bank you listed; a client in the same boat as you and the other a 68 year old in his last year of work. Both were exceptional deals with large amounts of cash and equity behind them. Both approved first time round with no questions from the "black hole".

I don't know the finer details of your deal. Maybe your deal is overall not strong enough to mitigate the risks. But it should not be dismissed so easily.

Although the NCCP has had a big impact, the banks policy change are minimal bar a few areas like bridging finance. The questions being asked now should always of been asked but the industry became "finance sales" focussed rather than focussed on any real form of risk assessment to protect both lender and client.

Contrary to some of the comments above; banks are still lending to pregnant people, they are still lending to people over 45, they are still lending to women of child bearing age, they are still providing policy waivers where risk is mitigated and the wheels in the residential finance Market are still turning...

The biggest problem the industry has now is 1000's of bankers and brokers not capable of completing a proper risk analysis let alone being able to present and mitigate those risks to credit.

 

[TheShuffler]

Shuffler - which bank was this?

My answer would be 'no'... clearly we will not take on a mortgage we cannot pay, but i can appreciate there are idiots out there who will try to

Are they still writing these deals? As i said above, we were just turned down (in principal) by 3 lenders with seemingly no risk assessment or further questions - and we're only losing one salary for 6 months

We could have $500K savings but no questions were asked???

The big freindly dragon

 

[Rolf Latham]

where risk is mitigated

Possibly 90 % of borrowers are not affected in any real way, so the assumption is those that are affected should not have had a loan in the first place.............meh, thats neither logical nor sensible.

Whose risk are we really mitigating ? It does appear there is compliance issues of the lender and/or broker to consider first and foremost, yet the quality of advice doesnt nec improve because of the completion and provision of fact finds, prelim assessments and credit guides. Those in the fin planning industry will recall the dozens ! of pages of rubbish provided to clients in the name of client information, the quality of advice perhaps didnt increase with the amount of paper provided to the client.

We now have governments ( of all 3 sides) forcing life changing decisions on some people for those "peoples own protection". To say that isnt happening is ignoring the "risk assessments" we are talking about, those same assessments will and are marginalising some potential borrowers.

The 50 year old female divorcee with 2 teenage dependents and minimal super with a 10 % deposit with no buffer. Her intention and "real life" long term capacity to take on a 30 year mortgage would not be a problem. But intent does not matter, the variable intrepetation of loose legislation means you are taking on a compliance risk by lending to her, demonstrated immediate capacity takes precedence over common sense. Basic financial modelling using conservative future assumptions would often show such a loan to be conservative and indeed not unsuitable in the end outcome.

Instead we must assume she will retire at age 65 or at best 70, thus the max loan term is 15 or 20 years PI, meaning she has nil perceived ( vs real) capacity to purchase a moderate suburban home.

The general interpretation of the legislation has possibly banished that borrower to a life of rental and likely government subsidy for the remainder of her days. ( I believe we will see some specific regulation coming in the next 18 mths to clean up some of these issues, but only if we dont accept the way things are now)

Others would argue she should not invest in her own home, but rent and tip her "spare" cash into super and or a share portfolio because that will provide for a lower risk.............. Lower risk to whom ?

Black and white simplistic views may work well in theory, they dont always serve the end user.

Rant ? possibly......... I realise life isnt fair and some minority will always suffer for the greater good. The intent of the legislation is good........the application leaves a lot of space for improvement.

I will leave you with THE Lender Risk Management Classic..........


Sorry, we believe you cant afford that loan repayment on interest only , being 2000 a month. We think you might fall behind on your repayments

We need to manage "your" risk, in case you fall over that you have made some progress on your loan, so we will only do it on 25 years PI and ask you to contribute 2300.

Just in case u think it doesnt happen.............just 3 weeks ago again

ta
rolf

 

[The Sniffer]

I will leave you with THE Lender Risk Management Classic..........

Sorry, we believe you cant afford that loan repayment on interest only , being 2000 a month. We think you might fall behind on your repayments

We need to manage "your" risk, in case you fall over that you have made some progress on your loan, so we will only do it on 25 years PI and ask you to contribute 2300.

Just in case u think it doesnt happen.............just 3 weeks ago again

ta
rolf

Very common. Unfortunatly the bank has some logic on this one.

The issue is not that you can't afford the interest only component. It is that the contracts are 5 yrs IO reverting to 25 yrs PI.

If you can't service the loan over 25 years you cant have a loan contracted to revert to a 25 years loan - problem the bank has is that the 25 year loan term repayment is listed in the contract as your minimum repayment after IO and therefore they must ensure you can meet that repayment (as per the contract).

If you have a 30 year loan with no IO the contracted repayment is lower. Therefore you can borrow more.

If you can't afford 25 years PI you might qualify at 28 years. Therefore take 2 years interest only reverting to 28 years PI.

You can always ask for another IO period after two years. In some cases extension to IO period is automatically approved up to 15 years.

As dumb as it is some banks can give you a 30 loan and you can change to 5 years IO the next day in the branch.

 

[Rolf Latham]

nah, not in the instances I speak of, zip to do with borrowing more, everything to do with amortisation.

Im talking where the surplus is fine to service X debt at PI over 25 yrs with plug rate, so no lender black box excuses

But because there is something in the deal they dont like they ask the borrower to carry a higher ongoing contribution

recent example was a self employed allied medico.

tried for a no LMI waiver at 90 %

Servicing tight but just ok at 25 pi.

But lender wants accelarated amortisation of the 10 % and repaid over 3 years with the balance over 25.

Happy to provide loan where client doesnt now service by 1300 a month by their own standards when they say they cant service the lower amount. Makes sense to reduce lender risk in case of default, but makes no sense overall.

NCCP idealogy would say, no this makes no sense at all, but corporate trustee loan so lender doesnt care, but is happy to take a personal guarantee.

Outcome, obviously went elsewhere

ta
rolf

 

[RumpledElf]

My main bone to pick with the banks is as far as servicability goes, they pick and choose what they accept as income. We have 7 different small income sources ranging from $3k to $15k. For a lodoc they'll take 1 of them. Fulldoc they'll take 5 of them. Another bank will only take 4 of them. This is why we have always wanted a stated income lodoc - so we can just tell the damn banks what we earn and not have to argue with them. Sadly, these loans ceased to exist on Jan 1st.

We've had one broker who told us he can get us a loan easily if we get a letter from an accountant who can verify our income. Why is it different if an accountant goes through our paperwork and adds up our income with a calculator vs the bank itself going through our paperwork adding up our income with a calculator?

Oh yeah, the bank throws out half the paperwork before they start adding ...

Edit: the dumbest thing is, the income streams they'll accept without question are ones we've only had since June last year. The ones they reject first are ones we've had for over 3 years. And they'll accept a rental appraisal on our current house which isn't even current income at all!

 

[Samwise]

Any of you brokers out there care to contact a few of your lenders and see how they will be interpreting this sort of situation?