22nd November 2007
When borrowing doesn’t add up
In recent months there has been increased discussion from some quarters around responsible lending practices, and further changes to national legislation to protect borrowing consumers.
At La Trobe we cannot stress enough the importance of ensuring your clients borrow properly.
Before a borrower enters into an agreement to borrow money, the borrower must be certain that the details of the loan they are committing to are clear and understood. The borrower has an obligation to repay a loan in full, yet some loans are taken that may drag a borrower deeper into debt – possibly resulting in the loss of their home. This has serious implications if you have been involved in directing them to a predatory lender.
For that reason, brokers should be aware of the following ten warning signs of Predatory Lending.
The Ten Warning Signs of Predatory Lending
The questions below are a good way for you to know if someone could be misleading you about a loan and its costs. Just because you answer "yes" to these questions does not mean your client is or has been a victim. But, if you answer "yes" to some of the questions, we recommend they contact an independent lawyer or adviser for more information and guidance.
|1. Were you encouraged to include false information on the loan application, or to leave out information you considered important to the prospective Lender?
||6. Is the loan amount on the loan you obtained higher than the value of the home?
|2. Were you asked to leave signature lines or any other important line-item of any form/document blank? Did the lender (or broker) alter any information entered on the loan application?
||7. Did you incur any unexpected costs at settlement that were not explained or disclosed prior to the settlement?
|3. Check the loan file with the broker/lender. Are any of the following disclosures missing or changed?
- Application Form
- Income verification form or documents
- Accepted Letter of Offer
- Mortgage documents
|8. After settlement, were you surprised to find that the monthly payments on the mortgage loan were higher than you anticipated based on the initial disclosures?
|4. Has a client refinanced their loan several times, and in each instance increased either the monthly payment and/or the total amount they owe?
||9. If a client has a balloon loan (one in which after a series of low payments the entire loan balance is due in a large lump sum),will they need to obtain another loan to finance that final lump-sum amount?
|5. Do documents, or regular statements from the lender reveal that interest rate calculations, repayments or terms are different from what was signed?
||10. Was the client required to buy credit insurance, insurance that will repay the debt if they die or become disabled? (Note: Credit insurance is optional and will not affect the loan decision if you decline to buy it. It can, however, add considerable cost to the loan transaction. You should decide whether you are going to purchase credit insurance carefully).
To assist brokers educate borrowers about responsible lending, La Trobe have developed a free Consumer Advisory brouchure for your use. If you would like copies please contact our office on 1800-707-707 and ask for Ms Marysia Pelc.
To get a copy now, please follow this link...
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Head of Lending
Iain Pepper is a Vice-President and the Head of Lending for the La Trobe Group.Read full profile here.
La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 145 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.
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