Lenders tightening low doc loan requirements: ASIC

Lenders tightening low doc loan requirements: ASIC
Lenders tightening low doc loan requirements: ASIC

A review of low documentation, or 'low doc', home loans by the Australian Securities and Investments Commission (ASIC) has discovered that lenders have tightened their policies around these mortgage products since 2010.

Before new responsible lending laws were introduced in 2010, borrowers did not always have their financial circumstances verified for a low doc loans, with lenders relying on statements from borrowers that they could meet the repayments.

ASIC notes that in some cases this led to borrowers being unable to repay the loans, or forced to sell their homes.

The review of 12 lenders found that since the introduction of the new laws, lenders had introduced more stringent requirements for low doc loans. New practices included obtaining additional information to verify income and introducing additional processes to ensure the reliability of information provided by brokers.

The Australian Prudential Regulation Authority has recorded a decline in the proportion of low doc loans of all new residential loan since the introduction of the regulations in 2010. Low doc loans now make up 0.7% of all new residential loans, down from 6.4% in 2010.

ASIC identified three compliance risks with low doc loans:

  • Poor-record keeping, including not recording the outcome of inquiries into borrowers’ requirements and objectives, and the relative priority of these objectives

  • Lenders relying solely on benchmark living expense figures rather than taking separate steps to inquire into borrowers’ actual living expenses

  • Lenders performing limited verification of borrowers’ ongoing fixed expenses for other loans they may have

Source: ASIC

Lenders reviewed have made changes to their practices in light of the compliance risks identified during ASIC’s review.

Jennifer Duke

Jennifer Duke

Jennifer Duke was a property writer at Property Observer

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Home Loans Asic

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