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ANZ’s decision to pull its 80 per cent low doc from the market, combined with the recent withdrawal of low doc discounts by CBA, highlights a re-pricing of risk that may represent an opportunity for the non-bank sector.
Kathy Cummings, executive general manager third-party lending, told Mortgage Business the bank’s Mortgage Advantage concession, which discounts loans by up to 0.7 per cent, will no longer be available on low doc loans with an LVR greater than 60 per cent.
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According to Ms Cummings, the changes to its low doc offering were made to ensure pricing for loans “effectively reflected the level of risk”.
“Low doc loans are a part of the bank’s home loan mix. The bank is not considering any further changes to our low doc offering at present,” Ms Cummings said.
Non-bank lenders re-priced low doc products some time ago as funding higher risk loans became more challenging.
Brett Mansfield, head of mortgage management at ING DIRECT, said the changes would simply bring the bank’s prices into line with that of non-bank lenders.
“It makes non-bank and bank pricing fairly similar,” he said, adding that with higher LVR loans, it could make non-banks more competitive.
Steve Weston, Challenger’s general manager of residential and commercial lending, said the changes were not surprising.
“It really has been a little irrational for no risk premium to be applied to low doc loans, so this is simply an unwinding back to more rational pricing,” he said.
Mr Weston said the difference in pricing between low and full doc loans in the securitisation market was around 0.7 per cent and that should be reflected in lending rates.
“Before August 2007 the difference in pricing between full and low doc RMBS deals was around 0.2 per cent; it’s now 0.7 per cent,” he said, referring to the market’s last low doc RMBS which was issued by Macquarie PUMA.
Despite the need to re-price low doc loans the consensus is that it still remains a very viable market segment.
“There’s definitely still a market there; there are a lot of legitimate low doc borrowers,” Resimac associate director of product and marketing Frank Knez said.
“It is simply re-pricing to reflect the higher risk of low doc lending.”
