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Mortgage brokers have been urged to make their own assessments independently of bank lending policies as banks continue to announce changes to their home lending criteria.
At an FBAA event in Sydney earlier this month, one mortgage broker questioned a major bank’s new policy around parental leave, fearing his client may not return to work as agreed.
Responding to the broker, former Barclays CEO of mortgages, Steve Weston, said brokers should make their own assessments independently of the bank’s lending policy.
“Document that conversation and put it in an email to the customer so that they are clear on what has been discussed,” Mr Weston said.
The FBAA’s Peter White reminded brokers they have a duty of care.
“Just because it’s a lender’s policy, you still have a duty of care," he said. "You must ensure that you act accordingly in line with that.”
Last month, Pepper Money's director of sales and distribution, Mario Rehayem, told The Adviser that brokers need to remember it is their obligation to collect as many supporting documents as possible from a borrower, regardless of what the lender’s criteria stipulate.
“The minimum requirement a lender may ask for is one form of income documentation. Brokers should not automatically default to this position and they should gather whatever number of documents they need to satisfy the requirement they have to make an initial assessment of a customer’s income,” Mr Rehayem said.
“The regulation clearly states that a broker is at higher risk by collating minimal documentation for income,” he said. “Whether that be full-doc or low-doc, to lessen the risk for a broker and ensure that they are putting a customer into a loan deemed not unsuitable, and that they have the capacity to repay and will not enter hardship, a broker’s obligation is to collect as many income documents as possible.
“For example, if a lender is only asking for an accountant’s letter that does not mean that a broker only asks for an accountant’s letter from their client,” he said.
The National Consumer Credit Protection Act, implemented in 2010, introduced licensing requirements, general conduct obligations and responsible lending obligations both for lenders and for mortgage brokers.
ASIC’s 2014 report on low-doc lending noted that brokers must make reasonable enquiries into an individual consumer’s specific circumstances and take reasonable steps to verify the consumer’s financial situation before making an assessment of the consumer’s capacity to repay the loan.
Recent reviews of the mortgage broking sector by the corporate watchdog (REP262 and REP330) found that brokers and aggregators were aware of the new obligations and had taken steps to comply — however, the reviews also identified a number of areas where they were at risk of non-compliance.
“For example, one common risk identified in our various responsible lending reviews is poor record-keeping practices," the ASIC report said. "This places credit licensees at risk of not being able to demonstrate they have complied with their responsible lending obligations and their general conduct obligations, including the requirement to comply with the conditions on their credit licences.”
[Related: Westpac announces major home lending changes]
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James Mitchell
AUTHOR
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.