Low doc lending allowed by AOFM

An old favourite of the non-bank lender, the low doc loan, may return to the market with the decision of the Australian Office of Financial Management to invest in this type of loan.

Up to 10 per cent of loans funded under the next planned round of $8 billion in investment may be low doc, though still secured over the borrower's home.

The allowance for low doc lending may cater for one policy goal of this investment, which is to provide some additional business finance through the program.

At up to $800 million in new flows of low doc lending, the amount is pretty small. But lenders may find other investors willing to consider low doc again, while banks may also loosen their own criteria in response.

Westpac is probably the major funder of low doc loans at present (through its Rams brand). Westpac may also be the major funder of sub-prime loans in the Australian market at the moment (as the funder of loans marketed by Fox Symes under that brand).

Heavy funders of low doc loans from the past, such as FirstMac and Advantedge (formerly Challenger) have become studious lenders of prime, full doc loans as they've adapted their business over the course of the crunch, and the need to conform to the needs of the AOFM.

They will be keen to make the most of the latitude for low doc lending and to see if they can drum up additional investor demand.