Mortgage brokers could do more to comply with responsible lending obligations, according to an Australian Securities and Investments Commission (ASIC) review.
Six months into the new national credit regime, the review found that brokers were generally aware of obligations and were taking steps to comply, but there remained room for improvement.
The new responsible lending obligations are central to the new national credit regime, which commenced for mortgage brokers and smaller lenders on 1 July 2010 and for banks, building societies, credit unions and registered finance companies on 1 January 2011.
"We undertook this review to assess how the home loan industry was complying with the new responsible lending obligations in the early days of the regime," ASIC Commissioner Peter Kell said.
Loans promoted as low documentation (low docs) were a particular focus, given the role these products played in the lead up to the US sub-prime crisis.
The review examined the procedures of 16 mortgage brokers. It identified some risks of non-compliance with the responsible lending requirements, particularly where credit assistance was provided for loans promoted as ‘low doc’.
Some of the compliance risks identified in the review included instances of brokers not recording: a consumer’s requirements and objectives beyond the immediate purpose of the home loan; steps taken to verify a consumer’s income; inquiries into a consumer’s actual living expenses; or consumers’ ability to make repayments.
"We are in the process of following up specific concerns with individual brokers, and will be working with industry bodies to promote compliance more widely," Kell said.
Mortgage and Finance Association of Australia chief executive Phil Naylor said the MFAA welcomed the audit and the findings of the review.
While some areas such as verification of income were meant to be preliminary and not a final assessment by brokers, the MFAA is working closely with ASIC to produce a set of workable guidelines for its members, he said.
