Powered by MOMENTUM MEDIA
subscribe to our newsletter

Banks blamed for low-doc’s bad rap

A key figure in the non-bank lending space has accused the banks of tarnishing the reputation of low-doc loan providers.

The allegation comes after Pepper Australia slammed an article which appeared in The Australian newspaper on Tuesday entitled ‘Low-doc loans make an unwanted return’.

In a statement on Wednesday, Pepper said the article featured misleading and incorrect statements about the lender.

But now another lender has come forward, on the condition of anonymity, telling Mortgage Business that banks actually “ruined” low-doc lending prior to the GFC by lending to the wrong borrowers.

The lender said that, prior to the GFC, it was not uncommon for bank staff to encourage PAYG applicants to obtain an ABN so that they could be considered self-employed and complete a low-doc declaration.

Advertisement
Advertisement

“Before the GFC there was no checking with accountants or looking at trading accounts like there are now,” they said.

“In some ways banks kind of ruined low-doc lending and some customers were able to borrow money with the best of rates.”

The Australian referred to low-doc loans as “liar’s loans” in its article, and claimed that they are now easier to obtain as “lending standards loosen”.

The article also claimed that low-doc loans are used by “tax-avoiding small business owners”.

But an ASIC review of low-doc lenders published last month found they had tightened their lending practices.

PROMOTED CONTENT


Before the introduction of responsible lending laws in 2010, some lenders did not verify a borrower’s financial situation for low-doc loans, according to ASIC.

“Instead, lenders often simply relied on a statement from the borrower that they could meet their repayments,” it said.

“This led, in some cases, to borrowers not being able to pay back the loan, or only being able to do so by selling their home.”

ASIC’s review of 12 lenders found that they had tightened their low-doc lending practices since the introduction of the NCCP.

ASIC found that lenders are providing low-doc loans to a narrower range of borrowers, and that low-doc loans are only being offered to the self-employed or those who do not have a readily verifiable income, rather than borrowers with a regular income stream that can be readily verified by documents such as payslips.

Banks blamed for low-doc’s bad rap
mortgagebusiness

Latest News

US-based global asset manager Ares Management has made a non-binding conditional proposal to bid for 100 per cent of AMP Ltd shares. ...

The major bank’s FY20 cash profit has plummeted 42 per cent on the prior comparable period, driven by full-year credit impairment charges ...

A former property developer has been found guilty of fraud in relation to obtaining funds from SMSF investors following an ASIC investigatio...

FROM THE WEB

Join a group of highly informed brokers.

Broker Pulse, a community-driven knowledge base of lender performance Reveal exactly which lenders are making life easiest for brokers and their clients by taking this monthly survey and joining a group of highly informed brokers who leverage these insights every month.

JOIN NOW
podcast

LATEST PODCAST: Court cases and penalties

Do you expect to see strong uptake of the HomeBuilder scheme?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.