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Sunday, 15-Sep-2013 20:07 Email | Share | Bookmark
Low Doc Loans

7 things you should know about low doc loans

STEPHEN LONG: And move to a caravan park. Over in Perth, Kate Thompson recalls the tricks banks taught brokers to get loans across the line, such as calling rising house prices "income". KATE THOMPSON: So when we're putting down a customer's income, we are allowed - we were allowed to use capital growth. It was projected income. It's not disposable income. But we were allowed to use it. STEPHEN LONG: These are some of the people caught up in the low doc loans scandal. WOMAN: If you can't trust your bank manager, who can you trust? <br>For the original version including any supplementary images or video, visit

Low taxpayer risk with low-doc loans

"Can't claim it is risk free, but we claim our approach minimises the exposure to taxpayer," Australian Office of Financial Management (AOFM) chief executive Rob Nicholl told a parliamentary committee in Canberra on Friday. Mr Nicholl said the AOFM had no sub-prime loans among the mortgages underpinning the residential mortgage-backed securities (RMBS) in its portfolios. The parliamentary inquiry was examining the Australian banking sector in the aftermath of the global financial crisis. The collapse of the US sub-prime mortgage market in 2007 was the precursor to the global financial crisis. Mr Nicholls said the AOFM`s mortgages with at least 30-day arrears were just 1.1 per cent of its portfolio. He said this was less than that for full document and broader prime loans. The AOFM's investment in RMBS was $11.1 billion as at August 31, with the mortgage pools backing these investments being $25 billion, Mr Nicholls. Of these, less than two per cent, or just over $400 million, were low-documentation loans, a type of loan usually given to people who did not gain approval for mortgages from more traditional sources. Liberal senator David Bushby acknowledged the Labor government was right in boosting the RMBS market following the global financial crisis. Mr Nicholl said the AOFM had "some good stats" following Mr Bushby's comments that the AOFM had made money on RMBS products. <br>For the original version including any supplementary images or video, visit

A spokesman told me they were concerned about the lack of history with this type of lending and felt it was important to ensure that risk was being priced correctly. Also, the Tax Office has been looking into the subject for six months and doing some test audits: 70 per cent of low doc loan applications do not tally with the borrower's tax return. This could be fertile ground for ATO auditors, although the consequences of mass audits could be horrible for the economy. In many cases a low doc housing loan is simply a business loan in another guise - at a lower rate than the 11 or 12 per cent that the banks usually slug small business people. The reason Angelo Malizis at Mobius is able to offer 95 per cent LVR low doc loans at 6.99 per cent interest (through Wizard and other retailers) is because his 50 per cent shareholder, Allco, has set up its own mortgage insurance company, which is thought in the industry to be preparing an assault on the existing LMI duopoly (which is an interesting development in itself). But Mobius's interest rate may have to rise once APRA's new capital requirements bite. The general assumption among bankers and economists, which I tend to share, is that as long as unemployment remains low, home loan default rates are unlikely to rise as a result of a half a percentage point or so increase in the cash rate. <br>For the original version including any supplementary images or video, visit

Low blows likely from low doc loans

The amount of collateral required as pledge is far more than in the regular cases and hence the aspirant should be well versed with fact in advance. 4. Enhanced features One of the best features of the low doc loan is that the borrower gains extended access to a range of loan features and options that were previously unheard of or available for him in the market. Such loans could also be termed as a time and money savers for the informal and self-employed workers who find it hard to avail loans. 5. Increased opportunities to earn credit At present, due to increase in competition in the lending market, majority of the big names in the lending business, including the banks now offer low doc loan services. <br>For the original version including any supplementary images or video, visit

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