Compared to the predatory practices of the US sub-prime market, Australia’s non-conforming lending industry is safe, with conservative policies and sensible consumer protections in place, according to the head of a large Australian non-conforming lender.
Speaking at the IMN Sub-Prime Conference in Las Vegas, Bluescope Group chief operating officer Alistair Jeffery said Australia had viable safeguards and regulations that protected consumers from current pressures being felt in international finance markets, while the current US housing crisis underlined the need for fundamental principals for sound lending.
Jeffery accused certain segments of the industry of lacking lender awareness and attributed the current turmoil to a presumption of future house price appreciation.
“Our lenders generally understand that just because a borrower’s property value is increasing does not mean they can suddenly afford a substantially larger loan. They also understand that the use of teaser rates to improve apparent serviceability is flawed and effectively increases both borrower and lender reliance on future house price appreciation,” Jeffery said.
According to Jeffery, good lending means knowing your customers well enough to determine if they can afford their loan, protecting them from payment shocks and ensuring lender and borrower interests are aligned by requiring a reasonable deposit.
“Many risks faced by lenders could be masked in times of strong property appreciation, where consumers are able to refinance out of trouble.”
Jeffery pointed to the Uniform Consumer Credit Code (UCCC) and recommendations made earlier this week by the Australian Federal Parliament Lending Practices Inquiry, which called for “uniform regulation of brokers and better reporting on enforcement rates within the market”.
“One powerful provision has been the requirement that a lender act conscionably and not lend unless they have made reasonable enquiry into a borrower’s ability to pay. Penalties for breaching this provision can be severe and include the possibility of having the loan set aside, made non-repayable; so lenders have been diligent about ensuring they comply with the UCCC,” Jeffery said.
“This has limited certain practices that proliferated in the US such as ‘no-doc’ lending, where little or no enquiry is made into the ability of a borrower to service their loan.”
