ASIC has published Report 262, Review of credit assistance providers’ responsible lending conduct, focusing on ‘low doc’ home loans.
The report examined the procedures of 16 mortgage brokers providing credit assistance for home loans between July and December 2010 (the first six months of the new responsible lending regime).
It found that while they are generally aware of the new responsible lending obligations and taking steps to comply, it identified some risks of non-compliance with the responsible lending requirements, particularly where credit assistance was provided for loans promoted as low documentation (low doc).
Consistent with the regulatory requirements, files reviewed generally recorded inquiries into a consumer’s credit requirements and objectives, inquiries into and verification of a consumer’s financial situation, and/or assessment of whether a consumer would be able to meet their obligations under the proposed credit contract without substantial hardship.
Some of the compliance risks ASIC identified in its review included instances of brokers not recording:
- a consumer’s requirements and objectives beyond the immediate purpose of the home loan (eg buy a home)
- steps taken to verify a consumer’s income, or relying only on statements from a consumer to verify income, when providing credit assistance for home loans promoted as low doc
- inquiries into a consumer’s actual living expenses or steps taken to verify a consumer’s ongoing fixed expenses; and
- how a consumer’s ability to make repayments under the proposed credit contract had been assessed.
ASIC has announced that a further review of how credit providers in the home lending market are now meeting their responsible lending obligations will commence in coming months.
