commercial's FotoPage

By: commercial commercial

[Recommend this Fotopage] | [Share this Fotopage]
View complete fotopage

Saturday, 16-Nov-2013 20:51 Email | Share | Bookmark
Low Blows Likely From Low Doc Loans

Low doc loans

It's hard to generalise because low doc can mean many things: up to 60 per cent loan-to-value ratio may be lent uninsured; up to 80 per cent insured; some carry a rate premium, some don't. The most aggressive low doc lender in the market at present appears to be a 95 per cent LVR low doc loan from Mobius, which is half owned by Allco and half by GE Capital (it came with Wizard Homes Loans, which GE bought from Mark Bouris and loans for small business Australia wide the Packers last year). The lender doing the highest proportion of them is Adelaide Bank, 40 per cent of whose new loans are low doc. And there are many different reasons for customers not wanting to provide proof of income: they can't be bothered; they were knocked back for the loan elsewhere because their income was too low and now they're lying; a small business whose takings are down right now but will pick up any minute (I promise!); they are lying on their tax return and want to tell the bank the - higher - truth. Regulators find many of these reasons distressing. Yesterday, APRA issued new capital guidelines to lenders' mortgage insurers requiring twice the capital support for low doc loans than for normal loans. 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. <br>For the original version including any supplementary images or video, visit

Low-doc loans a risky business

My - and my job was wrong. The amounts I earned was wrong. A small business I had, the valuations was wrong. So there's 17 glaring mistakes that they had filled in that I didn't know about. WOMAN: The head office actually said to me, "Ms (inaudible) I've no idea how you got yourself into this mess. You've got $750,000 worth of shares and you've got $13,000 worth of income from rental properties you have rented out." And I said, "Well if you can find it, I'll give you half of it because it doesn't exist." WOMAN II: My total loans were $4.5 million with no income and a 30-year period, which would take me up to 103. <br>For the original version including any supplementary images or video, visit

Rather than provide payslips or tax returns, a borrower can simply state what their income is, a process called "self-verification". Low-doc loans are primarily for self-employed people with limited records of their income. But they can also be used by borrowers who have understated their income for tax purposes and wish to declare the correct, higher amount, to their lender. The ATO is conducting a pilot review this year of businesses which use low-doc loans, in an attempt to reconcile their tax records with loan repayments. Already, it has uncovered a smash repairer who just bought a home in a wealthy Sydney suburb and had substantial business assets. While his loan repayments were $70,000 a year, he earned only half that amount, according to his tax return. People like the smash repairer don't concern the Reserve Bank. It is more concerned about borrowers who use low-doc loans to overstate their income and get their hands on more money. In its biannual Financial Stability Review, released this week, the central bank put low-doc lending on its watch list, citing it as a potential threat to the banking system. So why are the major banks taking more interest in what is becoming an increasingly controversial and scrutinised part of the lending market? <br>For the original version including any supplementary images or video, visit

View complete fotopage

© Pidgin Technologies Ltd. 2016