22 March 2012

Responsible Lending & Low Doc

Is Low Doc lending an endangered species? Do I need to fear Low Doc applications? In short, 'no' and 'no'.

These have often been the questions posed by brokers following ASICs release of Regulatory Guide 209 - Credit licensing: Responsible lending conduct ("RG209") back in February 2010 (reissued March 2011).

Many brokers thought the days of Low doc lending were numbered, or that Low doc applications now carry too great a risk for them to get involved in; this is certainly not the case, and could potentially be income walking out the door for a number of brokers.

At La Trobe Financial, we have robust policies and procedures in place that ensure we comply with responsible lending practices, and have done so for over 60 years. La Trobe Financial pioneered the Lite doc product back in 1990, and continues to assist the self-employed to meet their finance needs with a multiple of product options available - we are no stranger to this type of lending.

What's required?

Credit licensees and credit assistance providers are simply required to adhere to the responsible lending guidelines set out in RG209, which call for reasonable enquiries about the consumer's financial situation, in addition to their requirements and objectives in relation to the credit contract being sought. Lastly, and this is the one causing most uncertainty for brokers regarding Low doc loans, the guide states that you are required to take 'reasonable steps to verify' the consumer's financial situation.

How do you take reasonable steps to verify a consumer's financial situation for Low doc applicants?

It is important to outline why our Lite doc lending program at La Trobe Financial remains sound and adheres to the responsible lending requirements imposed in RG209.

Our enquiries of the consumer's financial situation, along with their requirements and objectives remain the same regardless of whether the loan is fully verified or forms part of our Lite doc program. However, for the self-employed applicant, we understand that providing traditional methods of substantiation as to an applicant's income or capacity to repay can be difficult.

We ensure that the capacity of the Lite doc applicant to repay the loan is verified by:

  • obtaining an accountant's declaration from the applicant's accountant confirming their repayment ability, lodgment of most recent tax returns and knowledge of the borrower's stated income; and

  • obtaining a declaration from the applicant as to their income and ability to service the proposed loan without substantial hardship;

In addition to this we also:

  • conduct a credit bureau enquiry requesting details of the applicant's past borrowings and history of repayments with other lenders;

  • require all self employed applicants to hold a registered Australian Business Number, and be registered for GST (where applicable);

  • obtain a full statement as to assets and liabilities, reviewing the applicant's asset position to form an opinion as to financial capacity, along with reasonableness test given the age of the applicant (asset accumulation for age);

  • obtain statements from existing lenders to verify the borrower's existing repayment history (refinance applications);

  • conduct a customer interview call with the applicants to explain the details of the credit contract and confirm that it meets their objectives and requirements and will not cause substantial hardship;

  • apply a reasonableness test to the application in its entirety weighing up all factors relating to whether the credit contract is 'not unsuitable'.

Choose one of our flexible and competitive Lite doc products below for your self-employed clients:

Express Residential Lite doc ≤ $1m
LVR 80%: ≤ $1m
Purpose Purpose Purchase, refinance and debt consolidation and cash out (10%)
CRAA Up to 4 defaults^ < $25k total
Rate From 8.55% (includes trail commission)
Term 30 years
Application fee 1.0% min. $890 - no risk fees
Serviceability Lite doc (No LMI or BAS statements required)^
Broker commission - ongoing trail
- upfront commission with no claw back
Whilst some lenders have withdrawn from self-employed borrowers, La Trobe Financial remains committed to this important segment of our economy, with no BAS statements or LMI required.

Cash out (Residential or Commercial) ≤ $1m
LVR 70%: ≤ $750k, 65%: ≤ $1m
Purpose Unlimited Cash out
CRAA Up to 3 defaults^ < $15k total
Rate From 8.55% (includes trail commission)
Term 2 years
Application fee 1.25% min. $890 - no risk fees
Serviceability Lite doc (No LMI or BAS statements required)^
Broker commission - ongoing trail
- upfront commission with no claw back
Our flagship mortgage, the Cash out 70% LVR, gives brokers and borrowers greater flexibility to access real property equity up to $750k for broad purposes.

Commercial loans ≤ $1.5m
LVR 70%: ≤ $750k, 65%: ≤ $1.5m
Purpose Purchase, refinance and debt consolidation
(for retail shops, offices and light industrial properties)
CRAA Up to 4 defaults^ < $25k total
Rate From 9.20% (includes trail commission)
Term 2 years
Application fee 1.25% min. $890 - no risk fees
Serviceability Full/Lite doc (No LMI or BAS statements required)^
Broker commission - ongoing trail
- upfront commission with no claw back
A unique feature of our commercial loans is that they are available on both a Full doc and Lite doc basis.

Lodge an application now:

Application Form Accountants Certification Borrowers Declaration

If you require any further information relating to our Lite doc products, please call our experienced underwriting team or your dedicated BDM on 1800 707 707

If you would like a copy of ASIC's guide RG209: Credit licensing: Responsible lending conduct, or ASIC Report 262: Review of credit assistance providers' responsible lending conduct, focusing on 'Low doc' home loans, you can access them from the links below:

ASICs guide RG209

ASIC Report 262

Best regards

Iain Pepper

Your "lender of first choice"


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Iain Pepper
Head of Lending

t  +61 3 5177 1767
e  ipepper@latrobefinancial.com.au

Craig Robertson
National Relationship Manager
0447 599 664
Daryl Hill
National Relationship Manager
0408 566 524
0409 435 559
0421 029 691
0421 029 687
0408 566 518
Steve Lawrence
Head of Commercial Lending
03 8610 2807
Cory Bannister
Head of
0403 361 026
Darlene Musgrove
03 5177 1670
Andrew Mercer
03 5177 1652
Mercy Bvirakare
03 5177 1607
Jimmy Mc Grath
03 5177 1660
Luke Jones
03 8610 2816
Mark Stratton
03 8610 2832
Melissa Greenwood
03 5177 1798
David Ladd
03 5177 1770
Katie Paulet
03 5177 1718
Linda Gorski
Asset Retention
03 8610 2817
Phil Wilson
Asset Retention
03 5177 1656

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

^All loan applications are fully assessed to ensure the loan is not unsuitable and that we meet our responsible lending obligations. All defaults are considered in our responsible lending assessment. All features and interest rates are current as at the date of publication. 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. 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.

La Trobe Financial Services Pty Limited - Australian Credit Licence Number: 392385
La Trobe Financial Asset Management Limited - Australian Credit Licence Number: 222213