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The “operationalisation” of borrower living expenses will be one of industry’s “biggest challenges” next year, ING’s new head of third party distribution and direct mortgages has said.
Speaking to The Adviser magazine, Glenn Gibson, ING’s new head of third party distribution and direct mortgages, said that he expected to see a continued changing lending landscape next year and a continued focus on expenses.
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Alluding to the financial services royal commission’s final report (which is expected in February 2019) and the changing lending landscape, Mr Gibson elaborated: “There is going to be a lot of uncertainty next year. There is already a lot of uncertainty now, and there will be a lot of continued uncertainty next year.”
Stating that although it had been a “tough 12-18 months in the credit landscape,” it had “realistically been a tough credit landscape since the end of 2014, when APRA started to get involved with setting limits on investment lending and then moving to all different lenders having to match surpluses, minimum qualification rates, etc.”
He said: “Everybody has been focusing on the royal commission and the lenders getting tighter over the last short period of time, but it has actually been happening for a number of years,” he said. “It’s just that this year, it has culminated and has started to add up.”
Looking to the future, Mr Gibson said that he expected to see more focus on the living expense space, which has been undergoing greater scrutiny over the past year.
“The big question is: How do you operationalise the understanding of a client's living expense?” he said.
“I think that will be one of our biggest challenges as an industry, because it is very time consuming for both the consumers and the lenders to really understand a customer's living expense position. While everybody is stating it, there are lots of different forms out there on how you declare it, so we, as an industry, have got to come up with a way that we can actually operationalise that at both levels so that it is a lot smoother.
“There's no such thing as a unified method in this industry. Every lender is a separate entity and has to manage their own risk appetite, so while I think we will see a little bit of difference, I think every lender in particular will need to work together on this,” he said.
Expenses background and the BIG
The mortgage industry has been reviewing the way it collects and reports expense checks recently, following scrutiny from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Commissioner Kenneth Hayne looked at how lenders and brokers utilise the Household Expenditure Measure (HEM) when fulfilling their responsible lending obligations — an issue that arose during the first round of hearings and has recently been a source of debate in the broking industry.
To try and tackle the expenses issue, several banks have already begun trying to standardise the living expenses process for brokers, with the major banks adopting a Broker Interview Guide (BIG).
Earlier this year, the big four banks released a new interview guide for use by brokers when introducing loans to participating lenders to “encourage more consistency” in the collection of expenses data.
Following regulatory scrutiny of how borrower expenses are assessed and verified, the major banks released The Broker Interview Guide for Regulated Lending Secured by Residential Property for use by brokers when undertaking needs analysis and before introducing loans to the major banks.
The guide aims to “clarify the minimum level of inquiries participating lenders require brokers to make on their behalf” and provide a means to record the result of the inquiries made for the lender to review.
It contains prescribed inquiries into matters such as the customer’s purpose and product feature preferences as well as prompts to explain the implications of product choices and features to clients.
NAB introduced its BIG for broker-introduced loan applications on 21 November, stating that it was designed to deliver “good customer outcomes” for brokers and customers.
“The BIG is part of industry-wide change to ensure good outcomes are delivered to your customers in a simple, streamlined and supported way,” NAB said.
However, several lenders have been tweaking the BIG to suit their respective risk appetites.
