Mortgage brokers lax on checking up on applicants: ASIC

Mortgage brokers are not adequately checking the income of applicants, according to research by ASIC.

New licensing requirements and lending obligations were imposed on brokers with the introduction of The National Consumer Credit Protection Act 2009 (National Credit Act), which rolled out from July 2010 to January 2011.

While most brokers were adequately aware of these new responsible lending obligations there was “room for improvement”, a six-month review by ASIC found.

“We undertook this review to assess how the home loan industry was complying with the new responsible lending obligations in the early days of the regime,” ASIC Commissioner Peter Kell says.

“Loans promoted as low doc (low documentation) were a particular focus given the role these products played in the lead-up to the US sub-prime crisis and in equity stripping.”

ASIC found some brokers not verifying income claims by consumers and were simply taking applicants’ word.

“We observed files for home loans promoted as low doc where there was no evidence of any steps taken by the credit assistance provider to verify the consumer’s income,” the report found.

Some brokers failed to record details on what the consumers planned to do with the loans, details of their living expenses or how they would repay the loans.

“ASIC considers that the inquiries and verifications a credit licensee must make to satisfy their responsible lending obligations are scalable depending on the circumstances of the consumer. In some circumstances, fewer inquiries may be needed,” Kell says.

“This does not mean, however, that inquiries and verifications may be scaled down simply because of the label applied to a product, such as low doc”.