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MFAA Prosper : Mortgage and Finance Brief 07
On the surface of it, low-doc loans seem to go against what NCCP stands for. How can you verify that your customer is able and capable of repaying the mortgage through minimal documentation? It's a term that puts many people on edge. But a shift in perception, viewing it as an "alternative income verification" loan, could help rationalise it for brokers and consumers alike. Make no mistake about it, traditional low-doc lending is a thing of the past. Indeed, Dean Rushton, Chief Executive of Loan Market, says, "Nobody should be doing true low-doc residential anymore," he says. "And certainly not after 1 January." However low-doc loans in new, NCCP- friendly guises are appearing across the market, and could be the difference for brokers hoping to find the right product for some of their customers who are, for example, self-employed. Being able to offer alter natives to traditional verification methods is something that some non-bank lenders are looking to carve out as their point of difference, especially given the possible ban on exit fees, which will inevitably result in less-competitive non-bank interest rates. Resimac, AFM and Queensland-based MortgageEzy are cu rrently active in low-doc lending, while Think Tank, an up-and-coming non-bank commercial lender based in Sydney, is cur rently advertising a new low-doc product for the commercial market. The Think Tank Express Loan has a simple seven-point checklist for infor mation required and a fast-track formal approval process for loans up to $1m on LVRs of up to 75 per cent. Pepper Home Loans is one lender promoting its low-doc products. Chief Operating Officer David Holmes says brokers and lenders are now coming to ter ms with the NCCP and adjusting their low-doc lending practices. "Low doc really slowed after 1 July but over the past six months we have educated brokers about how to do low doc and things are picking up again. "I would expect that as the banks come on board with NCCP there will be another few months of adjustment and ner vousness, but by the end of quarter one I think people will have adjusted." Verification methods The key element in low-doc lending under NCCP is the verification of income, says Holmes. "Without doubt, low doc has changed to alter native income verification. The words 'low doc' imply something like sub-prime in the US and that makes people ner vous, but there is no similarity at all. "Low doc now means alter native income verification. So a letter from an accountant, bank statement or other kind of evidence is required to verif y the bor rower's ability to repay." Pepper says it accepts a minimum of six months' Business Banking statements, 24 months ABN registration and 12 months GST registration to enable it to verif y income. Brokers are still making use of such loans. Neil Gatta, a commercial and residential loan broker with Con nect Finance in Melbou rne, says there are still low-doc style products around, with the amount of documentation required intrinsically linked to the LVR. "There is no such thing as real low-doc lending anymore," says Gatta. "Having said that,Ijustdidadealforaloanwitha55per cent LVR based only on income from the rental property being financed." Gatta has completed his credit licensing and code compliance with the help of a business planner, and continues to do all sorts of lending with all sorts of lenders. "The higher exposure you go, the more info they want. At 85 per cent there is no low-doc anymore," he says. Low-doc makeover The term 'low doc' may set off alarm bells in the minds of NCCP-concious brokers, but a simple rebranding exercise could make all the difference. Words Jason Br yce “Low doc now means alternative income verification. So a letter from an accountant, bank statement or other kind of evidence is required to verify the borrower's ability to repay.” 22 | Mortgage & Finance brief
Mortgage and Finance Brief 06
Mortgage and Finance Brief 08