ASIC hands out mortgage broker report cards
Mortgage brokers have shown a consistent level of compliance with their responsible lending obligations, the Australian Securities and Investments Commission has found.In contrast, in a report issued yesterday, ASIC said it found that the risk of non-compliance went up noticeably when low-doc loans were involved. It has called on mortgage brokers and other "credit assistance providers" to review their practices in this area.This was ASIC's first review of the conduct of mortgage brokers since taking over regulation of the consumer credit market. It selected 18 credit assistance providers and reviewed the details of 324 instances of credit assistance with a view to identifying compliance with responsible lending obligations. Responsible lending was introduced into consumer credit law with the transition from state to federal jurisdiction in 2009.ASIC has focused on the records that credit assistance providers kept to form the basis of an assessment of whether a credit contract would be unsuitable for a consumer. It found that credit assistance providers were generally aware of their obligations.The report said: "We noted initiatives such as 'fact find' documents, designed to assist credit assistance providers in establishing and recording consumers' objectives."Files reviewed generally recorded inquiries into a consumer's requirements and objectives, inquiries into and verification of a consumer's financial situation, and assessment of whether a consumer would be able to meet their obligations under the proposed credit contract."One of ASIC's concerns was with the practice of equity stripping - inappropriate refinancing and debt consolidation. It did not find any evidence of equity stripping.Another concern was the practices involved with low doc lending. Here there were problems. The report said: "We identified instances where credit assistance providers were at risk of not being able to demonstrate that they had met their responsible lending obligations."There were instances where the broker relied solely on estimates of future earnings. In some cases there was no record of the consumer's living expenses. "There were files where no assessment of the consumer's ability to pay had been made. There were instances where interest rate buffers had not been applied or had been applied inconsistently."