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Common sense ‘missing’ in loan application scrutiny

by Tas Bindi6 minute read

Overbearing and persnickety reviews of loan applications have, at times, been “contrary to the spirit of the royal commission” or APRA’s aims, according to an elite broker.

Speaking on the latest episode of The Adviser’s Elite Broker podcast, Rebecca Jarrett-Dalton, the owner of mortgage broking firm Two Red Shoes, shared her thoughts on the impact of the banking royal commission, saying that increased scrutiny of income and expenses has not always demonstrated common sense.

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Drawing on a recent experience, Ms Jarrett-Dalton noted the effect that the current lending environment could have on an aspiring environmentally conscious property investor she has been consulting.

“There was a client at my desk… he’s got a really good income, but he’s a deliberate conscious saver. He lives off the grid; he’s got solar power; he’s got a water tank, permaculture garden; he home-schools his kids, cycles to work. He really deliberately spends so very little money,” she described.

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“He owns his home outright and he wants to buy multiple investment properties. Because he’s got such a strong income, the living expenses that will be arbitrarily applied to him under the new lending standards means he will run out of capacity before he is able to achieve his aims.”

The Two Red Shoes founder continued: “That is contrary to the spirit of the royal commission, or the spirit of APRA’s aims, shall we say. The room for discretion… there’s some work to be done there.”

She acknowledged, however, that loan assessors are “under an awful lot of pressure”, which is why brokers have to do a lot of rework on mortgage applications.

“I’m not necessarily putting the blame on [loan assessors]. I’m saying that they are all running scared. They don’t want to be the first one who gets pinged because of one of the changes in policy or one of the rulings that’s coming down from above or because an auditor picks up their file. They’re crossing every T, dotting every I, and then some,” Ms Jarrett-Dalton added.

“I’ve seen some seemingly crazy things coming back, and it’s a little bit frustrating.Yes, there’s lots of rework. Yes, there’s been some decisions I don’t agree with. I’m hoping that it settles down.”

No Fuss Homeloans director Kathy Dundas expressed a similar sentiment, saying that she is finding it “more and more difficult to help out [her] investor clients”.

“Three or four years ago, when the banks were throwing money at them, interest rates were low, everyone was going out there getting investment properties.

“I have clients with portfolios of four, five and some even 10 properties, which are unfortunately coming off their interest-only period… The bank that she’s with won’t consider re-rolling her interest-only [loan].”

Ms Dundas continued: “To tell someone that the rules have changed halfway through the game, it’s really hard for them to walk away feeling okay with that.”

While the final banking royal commission report proved to be a significant blow to the broking industry, with commissioner Kenneth Hayne’s recommendation to ban lender-paid commissions presenting a threat to the livelihood of brokers, the silver lining is that customers are increasingly turning to brokers for guidance.

For Ms Jarrett-Dalton, it’s “almost as though the minute that [the royal commission] report was released, somebody turned the phone on”.

“We’re actually busier than we’ve ever been,” she said.

In the two weeks following the release of the final report, the Two Red Shoes founder said the majority of the leads that her brokerage received were better placed with non-major lenders.

“If we lose the smaller lenders, we’re losing a substantial resource. I recorded every lead that came in [over the next fortnight]. There were 16 leads, and 15 of them needed to be placed with [a lender] other than the major banks. So, where would those [clients] go if we lost all our smaller lenders? We absolutely need to keep competition in the industry for so many reasons,” she said. 

“They’re not all going to non-conformers. Some of them are going to Macquarie, for example, because of particularly policy niches. We need to keep the competition there and brokers are critical to that.”

[Related: PODCAST: Educating her clients on finance while raising awareness on domestic violence]

Common sense ‘missing’ in loan application scrutiny
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Tas Bindi

Tas Bindi

AUTHOR

Tas Bindi is the features editor for The Adviser magazine. 

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