CBA CEO commits to reducing ‘reliance’ on HEM

Giving evidence to the financial services royal commission in its seventh round of hearings, CBA CEO Matt Comyn has said that the bank is committed to reducing its reliance on the use of the Household Expenditure Measure (HEM) for home loan applications.

Counsel assisting the commission Rowena Orr QC made reference to a report from the Australian Prudential Regulation Authority (APRA), noting that CBA’s reliance on the HEM was the “highest of all of its peers”.

According to the APRA report, as of October 2017, CBA was defaulting to the HEM for 75 per cent of its home loan applications.

However, Mr Comyn has committed to reducing the number of loans assessed through the use of the HEM by approximately 20 per cent, adding that the bank has introduced broader living expense fields in its home loan assessments.

“We’ve increased the number of expense fields to 11,” the CEO said.

“At each of those individual expense fields, there are both prompts to the lender which ultimately is meaning that we’re doing a better job of discovering what a customer’s declared living expenses figure actually is, and, therefore, HEM as the prudent floor is being relied on less and less.”

He continued: “I would certainly like to see it in the 50s very soon. I’m very confident it’s going to be at that level very soon.”

Ms Orr asked: “So that’s, in your view, an acceptable level of reliance on [the] HEM as a default measure, 40 to 50 per cent of your loans?”

Mr Comyn replied: “Somewhere in that order, yes.”

Despite committing to reducing CBA’s reliance on the HEM, the bank submitted in its response to the interim report of the financial services royal commission that the use of the HEM was “legal and appropriate”.

NAB and Westpac also backed the use of the HEM as a benchmark for validating a borrower’s living expenses.

Commissioner Kenneth Hayne has questioned whether the use of the HEM fulfilled responsible lending obligations under the National Consumer Credit Protection Act (NCCP), suggesting that “it does not constitute any verification of a borrower’s expenditure”.

[Related: Major banks back HEM despite RC concerns]