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ISSUE 7.15 August 2010
Low-doc lending declared ‘dead and buried’
Low-doc lending ‘gone’: Steve Kane, FAST
NCCP and GFC
fallout blamed for demise of low-docs Low-doc lending has been pronounced “dead and buried” by leading industry players, with new National Consumer Credit Protection (NCCP) laws and the financial crisis regulatory fallout combining to scuttle a possible revival of the low-doc sector to pre-crisis levels. FAST managing director Steve Kane said low-doc lending is now effectively “gone”, while FirstMac chief financial officer James Austin
and Resi head of consumer advocacy Lisa Montgomery agreed that low-doc lending can now be labelled “dead”. The demise is being attributed to the NCCP legislation, which requires brokers and lenders to obtain adequate information and take reasonable steps to verify a borrower’s situation at loan origination, requiring increased documentation. Meanwhile, irresponsible lending practices abroad which preceded the financial crisis, particularly in the US, have yielded reactive international regulation that will stifle a local low-doc revival.
Austin said low-doc lending had been “tarred by the US brush”, despite local lenders not entertaining the irresponsible practices seen overseas. “Unfortunately, with what’s happened offshore in changes to legislation, low-doc is now dead, and that does have the unintended consequence of choking off finance to the market,” he said. Kane said pressure from lenders mortgage insurance providers is adding to the tightening of credit, and borrowers “playing in the margins” would be hardest hit. “Even self-certification type transactions I think will come under significant pressure.” Nationwide Lending chief executive Glen Jones said the low-doc policies of funders and LMIs “has become somewhat difficult to place” since the crisis, and more so since the new NCCP regime. The lender recently chose to rebadge its low-doc loan as ‘Self-Employed Lite’ to better reflect its attributes, despite no material changes to the product. Australian First Mortgage national sales and marketing director Iain Forbes agreed that ‘no-doc’ loans – which rely on borrower certification – will be “extinct” by 1 January 2011 thanks to NCCP, and lenders will have to withdraw or modify these offerings. “Given the new legislative requirements to verify the borrower’s financial circumstances, we don’t believe there’s any ongoing place for these types of products.” Page 18 cont.
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