Westpac Lobbies for Expense Verification Changes

Not true. In the last 2.5 years, my family income has significantly increased (approx. 100%) but our expense has gone down (same lifestyle but kid is at school now so no childcare). We use our extra income to invest, not spend.

 

If only people took responsibility of their own actions and stopped blaming others when things go wrong.

 

100% unfortunately it's what happens.
Defaults are usually due to a change in circumstances not living expenses.
Reducing borrowing power doesn't mitigate against this.
Having higher assessment rate doesn't mean that everyone now has lump sum available in time of need.

 

Responsible lending safeguards can't guarantee against all Known-Unknowns risks, but they should, at the very least, provides safeguards against Known-Knowns risks.
Big disparity between 'what you claim you spend' and 'what you really spend' comes under Known-Knowns risk category.

Agree with @Rolf Latham
If one claims to earn X and spend Y he needs to demonstrate a saving of X-Y or close to it.
How its measured is immaterial really, line by line, month by month or thru some voodoo magic.

 

It's not just about what one is spending, it's about the ability to adjust that spending if required.
Rates are dropped to increase discretionary spending, not much point doing that if impacts your ability to borrow.
I like the approach of a detailed open discussion regarding spending habit between client + bank.
Some expenses are not ongoing, they can be address and noted on the file. Risk mitigated, compliant.

 

Westpac have really gone on the front foot in both HEM/MLE and jumping the gun with assessment rate.

Interesting that they're lobbying ASIC on about HEM whilst fighting a court battle at the same time
Westpac and ASIC fight over responsible lending after court rejects $35m deal

 

Totally agree. I don't need or want anyone else to take responsibility for my commitments. I also don't want anyone getting in my way either. Happy to deal with a lender or borrower on their own terms and happy for the government / courts to continue playing the role of umpire to ensure we all meet our commitments and enforce penalties for those that don't

 

In terms of this actually being an issue, it is a bit strange (there’s no real evidence underreporting of living expenses is an issue to lending quality).

I don’t think ASIC have actually thought too deeply about the policy here, they’re needs to be more coordination to help them understand what the actual aim is rather then just going out enforcing what their interpretation of the law is. Perhaps they feel pressure to be seen, given how the RC slammed their performance.

What exactly is the problem? What exactly is the aim/goal here?

If regulators stick to these two questions as first principles of policy making, they won’t end up at solutions that involve line by line assessments. They can come up with a number of better ways to achieve their goal, than line by line expense treatment. It’s too slow.

I.e this particular approach is classic ‘red tape’ regulation that serves little benefit to Australians and comes at a real cost. It’s 2019, Australians expect answers quickly and policy should help facilitate this. Tech helps improve loan quality too. Adding 2 hours to every file and requiring a manual assessment process is antiquated in today’s tech/auto business environment.

Over time, I expect Treasury/RBA will get involved via the CFR and give ASIC clearer instructions here. It’s probably already happening, key ministers are getting vocal about this. They just need some quality advisers/consultations to pin point where blockages are and how to fix them. Ideally they’re not picking up the phone to APRA demanding assessment rate changes, when the issue isn’t borrowing power per se, but flow of credit. They need to get money moving quicker. It’s already happening, but banks appear to be unsure of what they’re actually required to do or why their being sued by ASIC.

It’s part of the problem with three tier agency model to lending policy (ASIC are clueless about lending policy, it’s not their expertise and look at it in a silho). APRA/RBA should decide what to do here and ASIC lawyers should be told to enforce what they say.

If you wanted better loan quality, Ideally you could just have a higher assessment rate or a higher/better adjustable HEM figure and have this relied upon as the ‘responsible buffer’ and then rely on standard common sense (humans will give up the San Pellegrino to save their home and avoid bankruptcy if required). All loan data, arrears feedback, actual macro evidence suggests this is how humans react.

 

I don't mind the living expenses verification using most recent statements, but the fact that we need to assume people that earn more spend more it really does not make sense to me. Just becuase someone is earning $300k a year doesn't mean they need to spend a minimum of $5k a month on life style goods on top of their mortgage or rent expenses...