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Pepper’s director of sales and distribution dispels some popular myths surrounding specialist lending ...
Myth: Specialist loans are too hard to write
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In terms of technology, Pepper utilises NextGen’s ApplyOnline, which is the same technology that most of the majors use and is recognised by all brokers.
This means that the basic data entry requirements and lodgement process for brokers is virtually the same.
Another great feature that brokers can leverage is the ability to clone an application and send it on to the likes of Pepper for an alternative assessment. This becomes a great option for brokers when they receive a decline from a prime lender that most aggregator CRMs cater for.
The only difference with a specialist loan is that we require additional notes to support the submission, but this shouldn’t create any additional work for brokers, because this detail is captured during their preliminary assessment or fact-find.
The supporting notes have a much higher importance in assessing a specialist loan over a prime loan, because they assist our underwriters in obtaining a better understanding of a client’s circumstances.
Myth: Specialist loans take longer to assess
Rubbish. Pepper has one of the fastest turnaround times in the industry, and has had for the last 18 months. Applications submitted by midday will receive a conditional approval the same day, or if the submission is complete with all the supporting documents, we issue a formal approval same day.
Please note that this is not a computer generated approval – it’s an approval that has been carefully considered by an underwriter who has manually assessed the entire deal.
The only thing that can slow the process is when a client is unable to provide specific documents required for the assessment, but this is not unique to specialist loans.
Myth: Specialist loans are not NCCP-compliant
This myth always makes me laugh. Pepper is one of Australia’s largest nonbanks when measured by assets under management, currently standing at over $28 billion. If our lending practices were not NCCP-compliant, I am confident that ASIC would have shut us down without
hesitation long ago.
The brokers who shy away from specialist loans due to compliance concerns are most likely confusing specialist loans with no-doc and “NINJA loans” (No Income, No Job, No Assets), but this type of lending definitely doesn’t exist within Pepper, and I doubt it exists with any other reputable specialist lender in Australia.
Brokers need to understand that pre-GFC, major banks, non-banks and mortgage insurers were underwriting loans that catered for a wider range of borrowers, including those with credit impairment.
Just because the prime lenders, along with the mortgage insurers, have tightened their credit policies and credit scoring decision engines, doesn’t mean the industry should alienate those borrowers that truly deserve a second chance.
At Pepper, our individual assessment of loans and risk-based pricing enables us to be more flexible with our credit policy than other lenders, hence we can service a broader segment of the market.
This flexibility does not make us non-compliant.
The clients still have to prove they have the ability to repay their loan, and we still have to verify their income. The majority of our credit assessment is the same as the banks’ and other prime lenders in the industry – we simply have an appetite and flexibility to cater for a broader range of clients.
Saying specialist loans are not NCCP compliant is one of the most uneducated statements a broker can make.
Myth: Specialist loans mean bad credit
Unfortunately, many brokers still have the misconception that specialist lending is solely about ‘bad credit’. This reputation dates back to when specialist lenders were considered only as lenders of last resort, which may have been the case seven or so years ago.
Specialist loans are in more demand than ever before, for a range of reasons: the tighter credit policies; the need for alternative income verification, to allow a genuine self-employed borrower a crack at the housing market; and to allow a borrower to consolidate their debts to increase their cash flow. And let’s not shy away from the fact that there are many clients that have endured a life event, such as divorce, sickness or loss of employment, which forced their hand to enter into hardship, resulting in credit impairment. We all know clients that fit this profile, and these clients truly deserve a second chance.
At Pepper, clients with some form of credit impairment only represent 40 per cent of the business we write today, and I’d argue that the banks will attract at least 10 per cent of credit-impaired clients. We are proud to provide solutions for these borrowers who are credit-worthy – specialist lending is not taboo.
Pepper runs a global business hiring over 1,300 employees offering products that help fulfill a more diverse range of customer needs, and giving borrowers a fair chance at obtaining home loan finance.
