The major bank will now “monitor” loan applications with a debt-to-income ratio higher than 4.5 and will also bring in a new e-learning requirement for brokers that have not settled a CBA loan for more than a year.
The Commonwealth Bank of Australia (CBA) has announced that it has brought in its new debt-to-income (CTI) measurement for borrowers.
The move follows on from new requirements imposed by APRA on banks following its decision to remove the investor speed limit. Last month, the prudential regulator announced that it would remove its 10 per cent benchmark on investor loan growth for banks that could confirm that their policies and practices meet a range of expectations.
One of APRA’s expectations for banks is a commitment to develop “internal risk appetite limits on the proportion of new lending at very high debt-to-income levels (where debt is greater than six times a borrower’s income) and policy limits on maximum debt-to-income levels for individual borrowers”.
Several lenders, including NAB, have already tightened up their DTI ratios. CBA will now be monitoring all loan applications with a DTI higher than 4.5, while applications with a DTI higher than 7.0 will be subject to a manual credit approval check.
The new measure will reportedly help the bank get a clearer picture of what its book looks like and understand trends.
Speaking of the decision, Daniel Huggins, CBA’s executive general manager, home buying, said: “At the Commonwealth Bank, we constantly review and monitor our home loan processes and policies to ensure we are maintaining our prudent lending standards and meeting our customers’ home buying needs.
“Our decision to implement a new debt-to-income measure is just another example of our ongoing commitment to responsible lending and meeting our regulatory commitments.”
New learning course for inactive brokers
As well as bringing in the new DTI measure, the bank has also said that it is updating its accreditation policy for inactive brokers.
CBA has been amending the way it accredits brokers over the past few months and has already brought in minimum education standards and requirements for new broker accreditations (however, brokers will less than two years’ experience can still become accredited should they have a mentor who passed certain standards), and changed its segmentation model to account for qualitative as well as quantitative metrics.
It has now brought in a new requirement for inactive brokers, off the back of censure from the royal commission.
In the closing remarks from the first round of hearings, senior counsel assisting Rowena Orr QC highlighted that CBA last year revoked the accreditation of 710 brokers on the basis of inactivity (less than a quarter of its intended revocations) and noted that the bank had itself said that, in hindsight, it would have been better if the bank had provided more training rather than disaccrediting them entirely.
Ms Orr said: “By revoking the accreditation of hundreds of mortgage brokers on the basis of inactivity with immediate effect, and without first providing brokers with an opportunity to satisfy CBA of the quality of their activities, CBA paid insufficient regard to the interests of brokers in being able to recommend a full suite of potentially suitable loan products to a customer.”
It has now been confirmed that the bank will henceforth require inactive brokers (those who have not settled a CBA loan in more than 12 months) to take an “e-learning course” that details the bank’s current products and eligibility criteria.
CBA’s executive general manager for home buying emphasised that the new accreditation requirement does not require brokers to write a minimum number of loans in order to retain their accreditation with the bank.
Mr Huggins said: “At CBA, we understand there are many reasons why a broker may not have submitted loans to us. We understand that a broker’s role is to provide their clients with a loan that suits their needs and objectives. And, in some cases, a CBA product may not be the ideal solution for the customer’s unique financial needs.
“Our new e-learning training is another example of our commitment to driving good consumer outcomes.”
The short online course aims to give brokers a “refresher” on CBA policies and processes, which is followed by a series of questions that need to be answered.
Mr Huggins said that the move was being brought in as the bank had previously seen that “brokers who write very little volume with the bank are unfamiliar with [its] systems and processes”, which can lead to “poor customer experiences and outcomes”.
Applications from inactive brokers also take longer to process and require checks to “ensure they meet [CBA’s] regulatory obligations and standards”, Mr Huggins said.
Brokers who have not settled a CBA loan in more than a year will receive letters in the coming weeks explaining the new requirement and setting a deadline for undertaking the course.
Mr Huggins continued: “At CBA, we and our customers need to be confident that the brokers we partner with have the ability to provide home buyers with the right guidance on our products and services.
“To do this, it is important that our brokers understand their regulatory obligations as well as our policies, systems and processes.”
Mr Huggins concluded that the bank “recognise[s] mortgage brokers as a key channel for customers who are looking to purchase a home”.
[Related: CBA changes broker segmentation model]
Annie Kane is the editor of The Adviser magazine, Australia’s leading magazine for mortgage brokers. As well as writing news and features on the Australian mortgage market, financial regulation, fintechs and the wider lending market – Annie is also the host of the Elite Broker podcast and regulator contributor to the Mortgage Business Uncut podcast.
Before joining The Adviser team at Momentum Media in 2016, Annie wrote for a range of business and consumer titles, including The Guardian (Australia), BBC Music Magazine, Elle (Australia), BBC Countryfile, BBC Homes & Antiques, and Resource magazine.
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