18th June 2009

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 carefully whether you are going to purchase credit insurance).

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 Mr Craig Robertson.

To get a copy now, please follow this link...

Best regards
Iain Pepper


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Iain Pepper
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.

Copyright 2010 La Trobe Financial. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial. Disclaimer

IMPORTANT: This message, together with the La Trobe Financial website (www.latrobefinancial.com.au) and all its contents have been prepared for general information only and should not be taken as legal or financial advice, and as such the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before acting on any information present on this message or the La Trobe website. La Trobe Financial Asset Management Limited ABN: 27 007 332 363 and AFSL No: 222213 is the issuer and manager of the La Trobe Australian Mortgage Fund. It is important for you to read the Product Disclosure Statement for the Fund before you make any investment decision. You can get a copy of the PDS by calling 1800 818 818. You should consider carefully whether or not investing in the Fund is appropriate for you. (1) The rates of return from the Fund are not guaranteed and are determined by future revenue of the Fund, and may achieve lower than expected returns. Investors risk losing some or all of their principal investment. (2) The rating report is available on the La Trobe website or upon request. The rating is only one factor to be taken into account in deciding to invest. (3) Withdrawal rights are subject to liquidity and may be delayed or suspended. (4) Rates (where shown) are indicative and for information purposes only and must be confirmed by your La Trobe loan manager upon formal application. Rates are subject to change. Please refer to http://www.latrobefinancial.com.au for full comparison rate schedule