There is “no justification” for the delays in processing broker-lodged loans, the compliance manager of MoneyQuest has said, urging industry heads to be “more vocal and even militant in demanding meaningful action”.
Last week, the heads of the major banks acknowledged that while direct channel loans could take less than two days to approve, loans from the broker channel were markedly higher.
Recent stats from the Australian Finance Group (AFG) Index for April 2021 revealed that lender turnaround times surged to 27.1 days in the third quarter of the 2021 financial year (3QFY21) from 25.2 days in 2QFY21, while Momentum Intelligence’s monthly Broker Pulse survey has also shown blowouts in lender turnaround times.
Following on from recent commentary from the CEOs of ANZ, CBA, NAB and Westpac, in which they confirmed that there is currently a marked delay in approving loans from the broker channel compared with those lodged via the proprietary channel, many members of the broking industry have voiced outrage at the channel conflict.
Speaking to The Adviser, the compliance manager of brokerage brand MoneyQuest, Tim Donahoo, has called out the major lenders for providing a two-tier service system when it comes to processing mortgages.
Mr Donahoo voiced his belief that industry leaders, including aggregator groups, should be “constantly agitating for improved service standards with lenders”.
He commented: “The current discrepancies in turnaround times between different channels within the same lender has no justification.
“The broking sector heads need to be more vocal and even militant in demanding meaningful action, rather than just words.”
Responding to suggestions that broker loans take longer to approve due to incomplete applications or more complex files, Mr Donahoo acknowledged that the broking industry also has a “key role to play” in helping ensure that loans are approved as quickly as possible.
For example, he said that all brokers could contribute by making sure that their applications are “fully complete, comprehensive, meet all the lender’s requirements and policies, check for obvious errors and explain the scenario in detail”.
“An assessor should not be left with questions about the applicant, the outcome/s sought and the reason/s the proposal has been structured as it is.
“Brokers do themselves and their clients no favours by submitting applications that are giving the lender any obvious reason for not considering it at first instance,” he said.
MoneyQuest’s compliance manager also stated that arguments regarding the need to repeal responsible lending obligations (RLOs) – as mooted in the proposed consumer credit reforms – were moot.
Mr Donahoo explained: “I’m yet to see a sustainable argument that justifies why RLOs should be removed. It escapes logic, in my view, that it could be argued that it is no longer necessary for a credit licence holder to be responsible for ensuring that proposed credit is realistically affordable for the borrower and that the credit facility meets the borrower’s determined objectives and requirements. These obligations are not onerous and legally hold the credit licence holder to account for making sure the credit sought/granted is appropriate for the circumstances of the borrower. When did removing these obligations become a good idea?”
He continued: “The perceived complexity around the verification obligations within the RLOs has been put forward as justification for repealing the RLOs. Most of the discussion in this space relates to the analysis of living expenses, which has evolved into an excessively time-consuming and exacting process.
“So, let’s consider that. First, the legislation is quite plain: the credit licence holder needs to take reasonable steps to verify the applicant’s financial position. There is nothing there that requires a forensic, item-by-item analysis of an applicant’s every expenditure item.
“Secondly, any possible apprehension about what interpretation of the law that ASIC could apply in this area was removed by the decision in the Westpac case.
“If there was any doubt about whether close examination of expenses was needed, it was removed by that decision,” he said.
Mr Donahoo concluded: “Thus, it is open now for all lenders to scale back their strict policies and adopt more reasonable but still responsible approaches, such as Suncorp has recently done. The solution to greater efficiency lies directly within the control of the lenders and does not need any change to the legislation to achieve that outcome.”
The compliance manager suggested that instead of removing legislation to free up the flow of credit and reduce approval delays, lenders could:
- adopt more flexible approaches to living expense assessment that clearly distinguish between core essential expenses and discretionary/lifestyle expenses. “If the latter needs to be reduced in order to meet servicing criteria, place the onus on the borrower to acknowledge this (if there is a push for greater borrower responsibility). Such changes to expenditure habits are within the control of the borrower and can be accepted as such. People do change their habits once they have a regular loan repayment obligation to meet,” he said.
- Adopt the industry-agreed LIXI standard for living expense classification and stick to it. “Individual lender variations present avoidable headaches for the industry and are not necessary,” Mr Donahoo commented.
- Ensure that credit assessors are appropriately experienced, trained, and have individual discretion to approve applications that might not fall strictly within the ideal framework. He added that assessors should: “Read the comments included by brokers and be available to discuss applications directly with the submitting broker. A well qualified assessor should be able to fully assess and make a decision on most applications within one hour, assuming all relevant information and evidence is submitted. I speak from experience, having been involved in consumer credit for 36 years,” he said.
- Do not place over reliance on automated assessments. “Such processes can be useful, but there is no substitute for individual consideration of all aspects and making a decision based on experience and knowledge,” Mr Donahoo concluded.
[Related: Turnaround time conflict is a looming liability for the majors]
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