WBC increases rental used in Servicing

My read on this is the ANZ is looking refinance an existing loan dollar for dollar if there is a case where it delivers a benefit to the customer. If their proposed repayment is lower than the current repayment, they're waiving many of the checks and balances.

If it puts the borrower in a better financial position, then it does kind of tick the responsible lending boxes.

 

no

 

Could the new repayment be an IO one compared to P&I hence lower?

 

No. An IO loan is more expensive in the long run because the rate is higher and the P&I repayments are over a shorter period after the IO period ends.

 

No, LMI deals aren't eligible.
However >80% LVR is eligible IF the LMI waiver applies.

Yes, as long as LMI doesn't apply with ANZ you're good.

$50K equity release/cash out maximum as part of this process.

If you did do this for an equity release >$50K it would defeat the purpose of the quick refi process as the application for equity release would be subject to a full credit assessment anyway

 

FYI this is an APRA/ASIC change.
It isn't an ANZ specific change.
The others will follow shortly.
There's been talk of this in regulatory scenes for a few years.

 

The thing is with most loan application submissions the software used to submit the deal does run a serviceability calc in the background based on the data input to the application. Where servicing is not evident it may cause the system to auto-decline the deal anyway, so that needs to be considered

This could lead to situations where the income is overstated on the application to pass the servicing hurdle as ANZ will not verify the income declared any way, it will be interesting to see how they mitigate this issue. Licensee compliance departments will need to be right across it as the Broker is still accountable for entering correct data.

 

Yes and ANZ make it clear that servicing needs to pass in their Q&A too.
But no checks…

 

What's stopping someone refinancing all of their Pepper loans to ANZ/Big 4 now?

Sounds like you can keep doing loans with Pepper, and then quick refi them to ANZ provided repayments are equal or lower. Essentially ANZ have the servicing calc of Pepper

 

A few issues with that strategy BUT we'll all know more about this in coming months. It wont be BIG 4 only too, it will be a structural change in lending over time.
- Servicing technically needs to pass. As more lenders enter, perhaps it doesn't need to.
- 12 month wait for loan to be there on CCR.

 

That's not how it works, as mentioned there is still a serviceability check in the application software itself PLUS you need to have 12 months of repayment history on the CCR for any loan being refinanced.

Essentially this process seems to be about improving loan processing timeframes more than anything, less paperwork and checks required.

 

It sounds like if you are not doing anything complicated, just refinancing for a better deal, it makes things easier.

Sounds pretty good to me - just in time for the fixed part of my PPOR loan to be expiring too

 

A lot of people in the last 5-6 years have been stuck in expensive loans. They're making the repayments but they can't meet the qualifying criteria to move elsewhere and their lender is holding them hostage. Nothing wrong with their affordability they just can't prove it.

ANZ's new approach addresses this. If you're meeting all your commitments consistantly, you should be able to switch lenders as long as you're not asking for more.

This kind of harks back to a pre-GFC policy the ANZ had. PAYG Lo Doc. If the LVR was 60% or lower and credit was clean, you simply signed a document stating your income income and this was taken at face value. Post GFC regulation (responsible lending) killed this policy despite ANZ saying that these applications had the lowest arrears rate of all their loans.

 

They can prove it that they can afford the repayments. The biggest proof is that they have been making those repayments for years now. But the regulators and banks ignored that fact and instead used their formulas in determining your serviceability (like inflated cost of living, lower rental income, much higher interest rate buffers etc)

I am not saying don't build in buffers and checks to make sure borrower can afford repayments if environment changes but the rules were somehow made to ignore the reality and instead just make it so hard for borrowers (especially once you have more than 2 loans) to borrow/refinance.

Cheers,
Oracle.

 

Perhaps I should have been clearer @oracle.

They obviously can afford it, but not by the banks policy and criteria, which the bank won't bend because they'd be breaking the law and neither ASIC nor APRA will accept a 'reasonable' argument.

I get the feeling that lenders risk departments are less about assessing the borrower risk and more about assessing regulatory risk.

 

There are some potential systemic issues with this policy IMO:

1) What about rising interest rates. You can afford your repayments at 2.15% pa what about at 5.15% pa? Repayment history alone does not show this so the loans are not stress tested.

2) A lower monthly repayment is one of the key hurdles. People will be encouraged to lengthen their loan terms which will cost them more interest in the long term.

So while it is a solution for some at the margins it is not a good policy when looking at resposbibnle lending or systemic risks. In an environment where rates are increasing this seems foolish to me.

A better solution to me would be just prove income and repayment history and that's it. No living expense scrutiny and debts as per application / credit files..

 

Technically these risks already apply as the borrowers already have the loans. Systemic risk falls given they are in better positions because of the refi process.
Individual bank taking it all on is silly though, but this will be broader lending change than an anz one.

 

With the kind of financial digital connectivity between what a PayG employee earns and spends,
can't loans assessment/approval be automated just based on consent with out any data submission?
of course with an option to challenge the auto assessment?

Why rely on someone to feed in data which needs to be verified any way?