Potential borrowers should be prepared to hand over even more information during the mortgage application process, after the Australian Securities and Investment Commission (ASIC) indicated that brokers should be taking a closer look at peoples' finances.
Speaking to Your Investment Property Magazine’s sister publication, Greg Ashe, director of Australian Credit Licensing and National Consumer Credit Protection (NCCP) Act specialists QED Risk Services, said he had recently met with ASIC representatives who told him brokers should be taking greater steps to verify borrowers' expenses.
Currently brokers often enquire about the living expenses of borrowers and then compare them to benchmark standards, but Ashe told Australian Broker that the regulator expected brokers to be using documents such as credit card and bank statements to verify claims.
“It was mutual astonishment really. I was completely astonished that that is what their expectation was and they were completely astonished that the industry is not already doing this,” Ashe told Australian Broker.
“They were of the strong impression that they have already made it clear enough that that is what was expected. They were mortified,” he said.
Ashe said he believed the requirement to examine statements is beyond what brokers are bound to do by the NCCP Act.
According to Ashe, chapter 3 of the NCCP Act requires that brokers must “take reasonable steps to verify the consumer’s financial situation” but this requirement does not differentiate between income and expenses, meaning there is no legal requirement for brokers to obtain statements.
“I am certainly not saying that a broker would never want to do this, and this is the beauty of being a broker – you get to have these real conversations with the consumer and establish a rapport with your clients.
“So if a broker thinks something is a bit odd because their client is saying they earn this much and spend this much and it doesn’t sound right then that might be a time when the broker asks to go through their budget in detail and ask for bank statements and credit card statements.”
While a broker may well be within their rights to ask for expenditure documents, Stella Ukhanna, mortgage broker with Rocket Home Loans, said she would be uncomfortable in doing so.
“I wouldn’t be comfortable going through somebody’s bank or credit card statements item by item to verify their expenses. To me that would be an invasion of privacy,” Ukhanna said.
“At the moment a lot of people are reluctant enough as it is to hand over information about their income and it would just become worse if they had to provide information on expenses,” she said.
Ukhanna said she felt mandatory expenditure verification would be nothing more than over compliance and would likely do little in determining somebody’s suitability for a mortgage.
“If ASIC’s issue is that they’re concerned about people being able to service the loan, then at the end of day I don’t think the calculation of living expenses is a major issue,” she said.
“When you look at what happens when somebody is unable to service a loan, it’s usually caused by two things. The first is that somebody has lost their job for whatever reason and the second is fraud related, where somebody has lied about their income to start with.
“I don’t think going through someone’s expenses and looking at how much they spent on pharmaceuticals or groceries in the last two months is needed for a loan application.”
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