Lenders will “pare back” their scrutiny of home loan applications when the financial services royal commission draws to a close, according to one industry veteran.
Speaking to The Adviser during the first episode of its webcast series, Responsible lending: Has the game changed?, chairman of Opica Group Brett Spencer claimed that the tightening of income and expense scrutiny from lenders has been a “gross overreaction” to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Mr Spencer said that he believes the commission has “put a lot of fear” in the mortgage industry, prompting lenders to adopt “granular” interpretations of responsible lending guidelines.
“I don’t think the granularity is the standard,” the chairman said. “It’s a knee-jerk [reaction].”
He added: “[There’s] the fear factor of ‘what is the royal commission going to come out [with]’, [causing lenders to] go to the nth-degree now, the ‘worst-case scenario’.”
However, Mr Spencer noted that he expects credit scrutiny to “pare back” after the royal commission publishes its findings, predicting that an expense standard would be agreed upon by a majority of lenders.
“There will be an expense categorisation standard that I think the bulk of lenders will agree to, not 100 per cent, but probably 70 per cent,” the chairman continued.
He also called for greater regulatory clarity, claiming that current guidelines are creating issues relating to interpretation.
“Regulation should give us some rules to follow, not just some guidelines to interpret. Interpretation is what causes the mysteries and the issues," the chairman said
“If you want to regulate something, regulate and tell me what I can and can’t do.
“It’s like rules on a football field.”
Moreover, Mr Spencer encouraged brokers to adopt compliance technology to help ease regulatory burdens.
“There’s a number of technology providers who have come out that can provide the data, can provide [brokers] with the bank statements,” the chairman said.
“It’s about adopting platforms that actually provide you with the responsible lending ability to look at [a customer’s] transactions and find those undisclosed debts.”