Suncorp lead the charge

If it was hard to qualify for a loan with Suncorp before this...

... I think Suncorp just put themselves out of business. Death by documentation.

 

I know why they’re asking but personally I’d find it an invasion of privacy. I’m not the type to frequent certain establishments but imagine if you were. Do you want some pimply faced kid (or backpacker in some lender’s cases) going line by line through your monthly credit card statements?

 

If 3 months wasn't enough, why is 4 months? Why not 5?

 

Given the royal commission findings, I expect this to become the norm.....

 

True, although even for six months, borrowers may withdraw large sums of cash just prior to assist with reporting lower expenses

 

This is dumb.

Not so much by Suncorp, just the idea that moving in this direction actually helps anyone.

It doesn’t:
- address any systemic issues in lending or Improve credit quality outcomes significantly
- doesn’t make customer outcomes better
- doesn’t make life simpler
- doesn’t allocate credit better in any meaningful way that outweighs the cost
- doesn’t protect borrowers from overleverage

Essentially it doesn’t help much and costs a fair bit in terms of time and stifling innovation.

This is what happens when lawyers/policy makers overregulate on business they have no expertise in. Making broad based policy changes based on a few bad cases is stupid.

Leave it to APRA to decide. They’re a whole lot smarter than lawyers when it comes to this. If there’s systemic risk from not doing this than it’s worthwhile. But there isn’t enough evidence to suggest this.

This will play out for a while and then move back to general simpler measures (like HEM or equivalents) again soon enough when they realise the actual costs of imposing these dumb requirements. Dumb policies that stifle growth for little benefit usually get fixed over time.

 

Let's remember that the Royal Commission can only make recommendations, it doesn't make policy or law.

Right now the banks are grovelling (and that's what this is) because of all the bad publicity the hearings bring. They're making some changes to try to look as if they're addressing problems.

After the Commissioner's final report is out, the politicians will pour over it and start to think about regulation and legislation. At that point the banks will pull the regulators and treasury aside and tell them what the economic realities of taking all this to the utopia the lawyers want.

Simply put, it means very few people will be able to lend money. The average Australian will never own their own home because the bar will be set too high. Banks will collapse, super will collapse, the economy will go into a depression.

So at the end of all this, there'll likely be some rationalisation. Lenders may ask for savings and card statements to keep the regulators happy, but they'll rationalise the difference between Rolf's private school fees and my Netflix subscription (mandatory and discretionary expenses). Private schools could be in trouble.

It won't go back to what it what it was, not even close, but I think a lot of what the RC wants will be glossed over or ignored.

As for mortgage brokers like me, we'll either be completely indispensable to navigate the minefield, or we'll be regulated out of business as sacrificial lambs.

 

Why stop there? Maybe people will set aside a large sum of cash to cover livings expenses for 2 years as lenders now require 18 months worth of statements to verify living expenses.

In all seriousness, @Redom is spot on. Regulation gone mad and won’t actually do anything except make borrowing harder.

The question is - is there actually a systematic issue this is going to fix?

 

It’s really about; what are you trying to achieve with this?

When you answer that, the best policy outcome to achieve it won’t result in requesting for a forensic examination of recent expenditures. There’s simply better ways to do it that don’t harm the efficiency of the system.

 

There is a really easy way around it too.

 

There are existing responsible lending requirements. The banks have not been following them, so new legislation is not required. From a public policy perspective reducing borrowing capacity is probably a good thing as reduces systemic risk in the banking system.

 

There are solutions coming to market with automatic verification of income and expenses which should significantly reduce the back end processing and requirements for bank statements etc Within a few years I expect these systems to largely replace manual handling/uploading of documents. Borrowers will have the choice to enter their login credentials with their MFI and other relevant accounts and their income/expenses verified to produce an instant indication of serviceability. I expect we will see a period of short term pain in regards to document disclosure as pressure mounts due to fear and public scrutiny. The tech is available today, just a lack of appetite to be seen as engaging with third parties and limited mainstream adoption.

 

One reason why I prefer cash!!!

 

This may be a debate worth having. You are going to the core of the question that should be asked - why are we doing this? Lower borrowing capacities is a legitimate why and may be right. I think it’s worthy of consideration especially in a low rate environment.

If that is the ‘why’, the ‘how’ is the next question? A simple increase the assessment rate to 9.25% or apply a DSR ratio. Public policy frameworks include simplicity and efficiency. This would achieve the desired result with a simpler outcome.

I do know that having line by line expense assessments slows the efficiency of credit flow down, stifles innovation and in turn, hurts the broader economy. It is not the best way to address systemic risk nor does it necessarily mean credit flows are better allocated.

The costs and implications of taking this approach are not well enough understood by those wanting it.

 

The question I and I think everyone is grappling with is especially for those on above average incomes is if your bank and card statements show you spend $10K a month is it reasonable to allow a % of that as discretionary spending? What do the lenders like Suncorp say about this. Nothing mentioned in their announcement. If they want to take the full $10K they will go out of business. I know I wouldn't send a loan there now.