Westpac Lobbies for Expense Verification Changes

Westpac lobbies for changes to expenses verification - Mortgage Business

We have all been banging on about this for a long time so good to see the banks onboard.

I know some people on these forums argue this is not the case but I just think they are wrong. Nearly all people are capable of living within their means and scrutinizing current expenses via bank statements makes no sense.

Hopefully common sense prevails on this one and they do away with this stupid time wasting requirement.

 

Whats the harm in proving what you claim you spend?
that's basic due diligence isn't it?

i think,
Banks are not crying about time it takes, that's just pretence, their real gripe is the disparity between real and imaginary is huge and that's hindering banks ability to approve loans willy nilly like before.

May be just may be, they are now realising that the impact of real expense scrutiny is bigger then even serviceability buffer.

 

THere's no harm in that at all. The issue is that borrowers may not be able to afford the loan on their current figures but that ignores the fact that people when they have a house with a mortgage to pay, will make lifestyle adjustments in order to keep their home (ie cut back on eating out, movies, flash clothes, private school fees etc etc).

 

so showing they can for 3/6 months shouldn't be a big deal then?

When household debt as high as we have(30% higher then even from peak gfc), do you think removing credit safeguards is a good idea?

 

Maybe if you have time to wait, unrealistic expectation for most people buying property though i suspect, see one you like and make an offer not wait 3 months.

 

It's a relatively significant case overall - clarifying the position that ASIC actually want banks to take during verification would be a good outcome. The regulator hasn't made it explicitly clear enough as to what banks must do. The courts haven't done this work for them either (subjective interpretation to responsible lending obligations). To date, most of the major banks do not request to see full coverage of all expenses over a 3 month period (although a lot of banks do now). Seeking some level of clarity on what ASIC actually want banks to do is fair game, and ensures a consistent verification process across the lending spectrum.

In saying that, all the points raised by the banks are legitimate too. Effectively the compliance, privacy & efficiency cost of a full verification method outweigh the potential benefits to the allocation of credit (which appear to be minimal). The request has an indirect consequence of slowing the flow of lending down, with what appears to be little upside. The theoretical upside to further checking would be lower arrears/higher loan quality. But data from banks suggest arrears issues are not a result of living expense understatements, but elsewhere, (largely changes in situation).

I think the short-is term, ASIC will do what the government wants them to do. Let banks lend. The Housing Minister, AT & Treasurer are all on board here, the RBA Governor is strong on this and APRA appear to be loosening the screws now too. A lot of lending market regulation cyclical. Like all regulators, they're always behind the 8-ball when it comes to what's happening on the ground (hence some of this loosening is 6-12 months too late, and the tightening was too late too). Now, everyone is on the same page about driving credit growth forward. Two years ago, everyone was on the same page about bringing it under control.

 

Yes, I think lenders should treat people like adults instead of naughty children.....if I was after finance, which I'm not, I could construct some "ball of lies" about my living expenses I'm sure. People have been telling lies to banks since Adam was a boy to get loans, and those lo doc loans of 10 years ago, were a prime example. How many of those loans went bad as a %?? (I'm not sure, but it can't be many of them surely?).

This is just the ebb and flow of the markets IMO. Tightening credit, prices come off, loosening credit, property goes up, booms, comes off, goes down, goes flat, goes up again......same ole, same ole.

 

Can’t agree with any of these comments.

1 - What’s the harm in providing statements?
Because it totally ignores the fact that 95% of people can and WILL adjust their living expenses to meet their required commitments. I mean this is just common sense really.

When I was 25 without a partner and a mortgage I would spend every cent I had every week.

When I met someone I changed this and made saving part of my weekly expenses. Some of my lifestyle had to go.

When we bought a house I had a larger commitment than rental so again had to make adjustments. I haven’t come close to missing a repayment.

We now have a baby on the way and guess what. I have already made a heap of adjustments to bring in an extra $300 a week. No extra work or income, just cut a few luxury expenses.

What I can tell you is I’m not special or unique. I am a very normal person in which this exact scenario plays out continually.

So what’s the expectation that I wait 3-6 months and hold off on things just so I can get a loan? What’s that actually achieving?


2 - The banks aren’t crying about the time it takes?? Have you submitted a loan lately where statements are required?
Have you spoken to a broker who at a minimum has added 3+ hours to every loan AND in some scenarios has to put clients in not as suitable loans because bank X requires statements and unfortunately the client just had a holiday which wouldn’t look to good even though they could very much afford it.

 

@albanga - consider an industry rep job (banking, mfaa, etc!)? You'd be a star! Summed up the downsides of actual verification and what has been the practical implication of this perfectly.

 

So disparity in what one claims to spend and what one really spends is not really an issue, just the extra time it takes for scrutiny?

 

Great post @albanga. Nothing wrong with getting an understanding of how much people spend, but it needs to be be rationalised with consideration of how act when they under financial stress.

Certainly there's minimum figures which people need to survive, but the HEM measurements already take this into account.

I think what the banks are trying to do here is to get ASIC to draw a line in the sand as to what needs to be done. Quite a few lenders mentioned in the article aren't actually verifying spending from bank statements at this point. They're probably worried that when a dispute occurs, they'll be asked what they actually did. Nothing is going to be good enough for a courtroom, so they're asking ASIC to define what is enough.

 

It’s flawed because it’s a point in time assessment not an ongoing reality.

Let me throw this to you.
Say you have 50k in savings.
You decide to take the family on a nice holiday because hey you have worked hard and you have earned it.
Leading up you realize you need some clothes and luggage and what not, you then go on holidays and enjoy nice meals and before you know your statements show your will above what you usually spend.

You return home and wouldn’t you know it Bank X has lifted your rates and won’t budge, plenty of other lenders with heaps cheaper rates. OR an amazing opportunity has presented itself OR you need some cash out from equity urgently because your daughter got sick overseas.

You go to your lender and they say no worries can I just see your bank statements.......

This is not at all far fetched. I could spin 1000s of stories as to why someone’s expenses over a 3 month period could have blown out. Doesn’t mean it’s normal and they pose any risk.

 

I am sure current system accommodates exceptions by allowing clients to submit couple of more stmts to clarify anomaly.

Is it the time its takes to process... your main concern or the actual verification itself (between claimed and real expense)?

 

It doesn't allow that at all actually. I applied for a loan just after my cat injured himself and had to have a one-off $1700 operation. I was declined due to that as they had put my annual vet expenses as 4 times that amount (as it occurred once in the three month statement). So yeah, I didn't get a loan I can easily afford because my expenses were too high due to a one off expense I had. Ridiculous!

 

If a potential extra yearly 5k expense knocked off your loan app maybe they thought you are too stretched financially?
responsible lending is there for a reason.

 

Give it a spell wiggle, the way you want it to be is not going to happen. Live with it
By the way, the Living expenses the banks say are a minimum for me are a lot more than I actually spend

 

As I said it’s both I have a real issue with.
It’s an inefficient way of doing something that has an inefficient outcome. And whilst you might not feel it yet, believe me if this becomes the standard requirement, we will all be paying for it.

It’s not free for an assessor to take a ruler to 3 months of bank statements line by line.
Sure some programs can do this but what’s the expectation there that everyone must now use a third party system to provide statements?
And then we are just back to flat out credit scoring now done at an expense level so say goodbye to those exceptions you noted above.

Let me give you another real life example. My mate who earns a packet went for a pre-approval with a major and servicing was not even close to an issue. His broker gets a call from an assessor asking him what’s this monthly debit?
Broker goes back to my mate who quickly explains its his $50 a month golf membership.
Broker goes back to assessor who at this stage has moved into another file so back into the queue. Now that’s a pre-approval so not a big issue but what about if that was a pending settlement or what happens if he missed a great deal on the weekend.
Even if said bank assessed golf memberships at an assessment rate of 2000 my mate would have smashed servicing.

This is just one of many many stories I know of from assessors who have access to bank statements. I have heard some doozies!

So again I say you might not be feeling it now but that’s only because there are much less doing it than are. If this changes then expect this inefficiency cost to be built into your interest rate.

 

It’s a hard one.

The problem arose because people lied.

Every credit application probably had the same living expenditure. But that is not how it works in real life.

The more you earn, the more you spend. It might mean that instead of flying economy, you fly business. Instead of snags for dinner, it is fillet mignon.

The role of the regulators was to find out why people were falling over when they did. It is not hard to work out that some people were using lower figures, that couldn’t, tighten the belt when required.

So the pendulum might have swung too far the other way, but I guess one good thing is that it is conservative.

And I completely agree that people can lie for the last three months to distort the figures - does that mean that a solution is an interrogation of figures over a 1-2 year period? Ouch!

 

I've said it before and I'll say it again, 3 months worth of an applicant's spending habits (even 12 months worth) is pretty meaningless in the context of a 30 year loan. Analysing bank statements for expenses is just a bureaucratic waste of time and money for all involved, a robust expenses benchmark makes much more sense.