Overly Strict and Impractical Credit Decisions May Exploit Borrowers

Xavier Quenon, Go Mortgage director, issued a warning to mortgage borrowers regarding the stricter and vastly impractical new bank credit practices and how they are likely to harmful to borrowers in the coming three years.

Many consumers may be worse off as a result of the impractical and unreasonable changes in bank lending, according to Quenon. He said, “A deal used to be hooked on servicing and valuation. Those were the two pillars, which are still there, but servicing has become more complex because of living expenses. There are compulsory expenses and discretionary expenses and all the banks have a different point of view.”

He claims there are more “mortgage prisoners” due to these new changes in banking mortgage lending.

Quenon, a Queensland-based mortgage broker, attended a FAST PD Day where he engaged with a discussion about the future of brokering. He said they spoke about the industry and where it will be in 2020. The discussion revolved around brokers, lenders and the kind of advice they should now provide to their clients. “The Productivity Commission, Sedgewick, and the ASIC remuneration review, while no longer topical, are the changes that are coming. The royal commission will deliver its results in 2019,” according to Mr. Quenon.

In his interview with The Adviser, he stated, “Between this year and 2020, we need to implement what is or was decided from the Productivity Commission and Sedgewick report. What will the industry look like once that has been implemented?”

Brokers who attended the FAST PD Day were presented a case study where applicants who wanted to have a renovation done, applicants who were planning on having children, and those who were business owns. According to Quenon, the takeaway was that brokers need to look at how each loan will service applicants with one income, two incomes, or those with or without children.

It is unreasonable to expect brokers to predict or guess about one or two incomes or how many children clients will have, but this is where the new guidelines are going. It seems that this will be the new norm.

Due to government policies, these guidelines and rules are simply impractical. The very people, consumers, who should be protected, will be victimized.

As banks stiffen lending policies in an over reaction to regulatory pressure and constant scrutiny, significant shifts will occur across the landscape and create more problems than it will solve any lending issues.

Paul Wiebusch, Deloitte financial services partner, questioned the impact of the implementation of comprehensive credit reporting (CCR) and open banking will have on high-risk customers.

Wiebusch said, “You can see what will happen for those who are lower-risk customers, who might be paying more than they need to at the moment. But at the other end of the spectrum, will this have an implication for higher-risk customers and potentially a desire to increase pricing for higher-risk customers?”

Wiebusch cautioned that if lenders being rate hikes for higher-risk customers in a setting where the ASIC and the ACCC are currently examining rate setting, there could be major ramifications to follow.

He thinks the elevated focus on “conduct-related” concerns will have implications for organisations’ strategic options when they examine their pricing responses.

According to Deloitte, he thinks that financial entities should be looking at all three of the components when pricing their framework. These three components include customer lifetime value, price elasticity, and profitability.

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