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ISCOVER
Jessica Darnbrough
Brokers and banks have become increasingly wary of low doc lending leaving some questioning the viability of the sector moving forward.
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Earlier this year, the Australian Democrats called for a Royal Commission into the Australian banking sector – with a significant focus on low doc mortgages.
“We have often praised ourselves for having a stable banking system, when in reality we have been hiding our own sub-prime scandal,” Australian Democrat David Collyer recently told The Adviser.
“This has left us terribly exposed and we need a Royal Commission to find out how deep the problem runs. We need to know the size and scale of the problem, so that we can fix it and put the appropriate measures in place to make sure this never happens again.”
The view of the Democrats is echoed by some brokers who believe that other products have now replaced traditional low doc loans.
According to Loan Market senior finance broker Hannah Nguyen, many lenders are currently remodelling their lending policies.
“In the past, if you had an ABN registered over two years and a good deposit of 20 per cent, you would get the loan easily by completing a self-certified income declaration,” she said.
“However, this is a thing of the past and now alternative documents such as a 12-month BAS statement, a letter from your accountant confirming your income, or a three month trading statement showing high turnover, are required.”
But according to a recent straw poll, a significant percentage of brokers are still writing low doc loans.
The latest The Adviser online poll has revealed that 45 per cent of brokers have continued to write low docs – and this is reinforced by Vow’s chief executive officer Tim Brown who believes there is no reason to stop selling these products.
“Low doc mortgages definitely have a place in the market and always will,” he said.
“As long as you follow the guidelines in place, there is nothing wrong with writing these types of loans. That said, if you simply don’t feel comfortable writing these products, you can always refer the scenario on to a specialist in the field.”
Mr Brown said Vow had recently launched a new “low doc specialist hub” that gave brokers the ability to refer their potential low doc clients onto a specialist within the aggregator.
