The major bank will be looking closer at living expenses on loan applications and will require brokers to collect more details on expenses in its updated loan application form.
The Commonwealth Bank of Australia (CBA) has issued a notice to mortgage brokers outlining the updates it has introduced to its online loan application form, including an extended list of monthly living expense (MLE) categories.
From Thursday (19 July 2018), brokers will be required to disclose how much their customers spend on takeaway, pets, beauty products, shoes and online streaming services, among other categories.
The full list of CBA’s MLE categories include:
- Children and pets: day care, tuition, extracurricular activities such as sports and music
- Clothing and personal care: hair and beauty treatments, clothing, shoes
- Communication: internet, pay TV, media streaming, landline and mobile phone
- Education: school/TAFE/university fees, books, equipment
- Food and groceries: fruit, meat, groceries, takeaway
- Housing and property: electricity, gas, water, strata, cleaning services
- Insurance: car, home and contents, life, private health
- Medical, health and fitness: doctor, dentist, physiotherapy, glasses, gym membership
- Public and personal transport: bus, train, ferry, vehicle registration, tolls, petrol, repairs
- Recreation, travel and entertainment: sport, boat, holidays, eating out, alcohol, smoking, gambling
Speaking of the changes, a CBA spokesperson said: “We are committed to responsible lending and ensuring that we have a clear understanding of our customers’ financial situations.
“We constantly review and monitor our home loan processes and policies to ensure we continue to meet our responsible lending obligations to do the right thing by our customers.”
In an effort to improve broker and customer experience, CBA also recently announced that it would be introducing “enhancements” to its valuation ordering process aimed at shortening the turnaround time from application submission to loan offer documents to three days or less.
“Previously, we were waiting for the final assessment before ordering the valuation. We are now ordering the valuation (if required) at the first assessment, so the assessment and valuation will occur simultaneously,” the major bank said in its alert to brokers.
“We’re committed to continuously enhancing our home loan process to ensure that we’re delivering great outcomes for you, and for our customers.”
CBA is the latest of the major banks to crack down on expenses and had already brought in new debt-to-income measurements for borrowers earlier this year.
Following the suggestion during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that ANZ was “non-compliant with the National Credit Act, responsible lending obligations and with regulatory guides issued by ASIC” by not verifying “inconsistent” living expenses, many lenders have been tightening up their credit policies around expenses and benchmarking.
Westpac has already updated its expense guidelines, requiring borrowers to provide documentation at an “itemised and granular level” across 13 different categories and include expenses that will continue after settlement as well as debts with other institutions.
ANZ Bank followed suit, telling aggregators at the end of last month that it would be making changes to its minimum living expense values. It warned brokers to ensure that an “accurate reflection of the customer’s financial position is presented”.
But brokers have increasingly voiced frustration with the interrogation of living expenses, with concerns raised that the ongoing crackdown on living expenses is an “overkill”, warnings that the increasingly impractical nature of bank credit decisions could be detrimental to borrowers over the next three years, and that there is still a lot of confusion over what exactly lenders want to see to satisfy expense checks.
The changing appetite of lenders has led to some companies launching new products to help brokers with the expenses check, including CashDeck’s new Credit Ready tool that enables brokers to retrieve clients’ bank statements and provide a detailed living expense analysis, and the Opica Group’s AI-powered expenses verification engine RELIE, which aims to help “protect any broker or lender from a breach of their responsible lending requirements”.