Is the government’s soon to be held Home Lending Practices Inquiry a genuine initiative into reviewing home loan lending or just a reaction to sustained media attacks on the non-bank sector? Mortgage Business investigates.
Lending credit standards, mortgage defaults, foreclosures and assistance strategies for struggling borrowers will all be put under the microscope in Canberra next month in a bi-partisan led inquiry. The non-bank sector has recently been scorched by the papers over these issues and can expect to be a central point of discussion at the roundtable event.
At least 17 groups will explore the implications of the possible decline in Australia’s lending standards, including the Reserve Bank (RBA), the Australian Prudential Regulatory Authority (APRA), the Australian Securities and Investments Commission (ASIC) as well as other regulatory bodies and senior industry representatives.
Another media beat-up?
MFAA CEO, Phil Naylor, will represent the non-bank sector, and has already submitted a report outlining the association’s stance on these issues.
Speaking with Mortgage Business, Naylor says that there have been “many assertions made by the media indicating that these issues are largely connected with the non-bank sector – and the MFAA intends to be very vocal in addressing these concerns at the roundtable.”
“Australia has a very low default rate, with 99 per cent of borrowers able to service their loans. The non-bank sector has strict credit policies in place and practices responsibly,” says Naylor.
Australian First Mortgage associate director, Michael Maiorano, has a beef with the media’s ongoing finger pointing, arguing that credit approval processes with the majority of the non-bank sector are far more stringent than those of the banks – contrary to the view held by the media.
“We have a three step credit approval policy, compared to the banks’ single underwriter process, as well as a more comprehensive valuations system. The allegations that the non-bank sector is lax with credit or responsible for an increase in defaults is simply untrue,” says Maiorano.
A few bad eggs
Jon Denovan, a senior partner with Gadens Lawyers, agrees that the majority of the non-bank sector practices responsibly. Like Naylor, he hasn’t seen any material evidence of a dramatic increase in defaults in the last few years that can be attributed specifically to the non-bank sector.
Denovan – who will also participate in the inquiry – has, however, taken note of what he describes as “a group of unscrupulous fringe lenders in the non-bank sector” that “prey on desperate borrowers,” and says their actions are tainting the rest of the sector’s reputation. Moreover, that there are some areas where non-bank lenders can lift their socks.
“It may have been the media who pushed this topic into the political spotlight, but there are issues to be looked at here – starting with the non-bank sector’s attitude towards dispute resolution,” says Denovan.
Lenders operating in the non-bank sector are currently under no obligation to join an ASIC accredited dispute resolution body. And while many non-bank lenders have chosen to participate, there are still plenty that don’t.
Even though the overall impact of unscrupulous lending is minimal, mandatory accreditation to an ASIC dispute resolution body, says Denovan, can only be a step forward for the industry’s development.
“Fringe lenders are only responsible for a fraction of those borrowers experiencing mortgage stress, but a revision of standards in the non-bank sector can only enhance its reputation,” he says.
Denovan also believes that the actual choices borrowers make when taking out finance should also be considered by the inquiry, as well as the responsibilities of non-bank lenders.
“Generation X and Y borrowers aren’t afraid of taking on large debts, and many are simply over extending themselves in the property market – which, within reason, is outside the responsibility of the lender,” he says.
The issues to be put before the roundtable are complex. In a climate of increasing consumer debt and plummeting housing affordability, the regulatory bodies and other concerned stakeholders fret over such matters on a daily basis. Mortgage Business can’t help but wonder, however, what achievements can be made for borrowers or the industry in just one day?
Denovan is inclined to be more optimistic.
“While there might not be time to produce any serious recommendations, if the roundtable is able to get the ball rolling on important issues such as dispute resolution, it could have a valuable impact on the health and reputation of the non-bank sector and its customers.”
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