The recent withdrawal of low doc loan discounts by CBA and ANZ highlights a re-pricing of risk that may represent an opportunity for the non-bank sector.
Last Thursday the Commonwealth Bank announced that its Mortgage Advantage concession, which discounts loans by up to 0.7 per cent, would no longer be available on low doc loans with an LVR greater than 60 per cent.
ANZ also recently removed discounts on its low doc loans of greater than 60 per cent LVR.
Kathy Cummings, executive general manager third party banking, told Mortgage Business that the changes were made to ensure pricing for the loans “effectively reflect the level of risk” however the lender would remain a key player in the low doc space.
“Low doc loans are a part of the bank’s home loan mix. The bank is not considering any further changes to our low doc offering at present,” Ms Cummings said.
Non-bank lenders re-priced low doc products some time ago as funding higher risk loans became more challenging.
Brett Mansfield head of mortgage management at ING DIRECT said the banks’ changes would simply bring the banks prices in line with non-bank lenders.
“It makes non-bank and bank pricing fairly similar,” he said.
In terms of the higher LVR loans Mr Mansfield said it could even make non-banks more competitive.
Steve Weston, Challenger general manager of residential and commercial lending, said these changes were not surprising.
“It really has been a little irrational for no risk premium to be applied to low-doc loans, so this is simply an unwinding back to more rational pricing,” he said.
Mr Weston said the difference in pricing between low and full doc loans in the securitisation market was around 0.7 per cent and that should be reflected in lending rates.
“Before August 2007 the difference in pricing between full and low doc RMBS deals was around 0.2 per cent, it’s now 0.7 per cent,” he said, referring to the market’s last low doc RMBS which was issued by Macquarie PUMA.
Despite the need to re-price low doc loans the consensus is that it still remains a very viable market segment.
“There’s definitely still a market there, there are a lot of legitimate low doc borrowers,” Resimac associate director of product and marketing Frank Knez said.
“It is simply repricing to reflect the higher risk of low doc lending.”
Are high LVR low docs still viable in the current market? COMMENT HERE
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