13 Jan 2014

When borrowing doesn’t add up

Over recent years there has been increased discussion around responsible lending practices. At La Trobe Financial 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 offered in the market 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 your clients 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 the answer is "yes" to some of the questions below, we recommend they contact an independent lawyer or qualified mortgage adviser for more information and guidance.

  1. Were they encouraged to include false information on the loan application, or to leave out information you considered important to the prospective Lender?

  2. Were they asked to leave signature lines or any other important line-item of any form/document blank? Did the lender (or another broker) alter any information entered on the loan application?

  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

  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?

  5. Do documents, or regular statements from the lender reveal that interest rate calculations, repayments (if a fixed rate) or terms are different from what was signed?

  6. Is the loan amount on the loan they obtained higher than the value of the home?

  7. Did they incur any unexpected costs at settlement that were not explained or disclosed prior to the settlement? Were Risk Fees or Equalisation Fees charged ... why?

  8. After settlement, were they surprised to find that the monthly payments on the mortgage loan were higher than they anticipated based on the initial disclosures?

  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?

  10. Was the client required to buy credit insurance, insurance that will repay the debt if they die or become disabled? Credit insurance is optional and will not affect the loan decision if they decline to buy it. It can, however, add considerable cost to the loan transaction.

To assist all brokers educate borrowers about responsible lending, La Trobe Financial have developed a free Consumer Advisory brouchure for your use. If you would like copies please contact our office on 1800-707-707, asking for Craig Robertson - Executive Head of Credit Sales.

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

... That's Lending

Best regards,
Paul Wells, Chief Investment Officer
La Trobe Financial Asset Management Limited

La Trobe Financial is one of Australia's leading independent credit specialist Fund Managers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 123 staff and has managed over AUD$10Billion covering over 100,000 investment grade assets since inception in 1952.

Copyright 2013 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

The following awards and ratings were given to the Pooled Mortgage Option within the La Trobe Financial Mortgage Fund and may be viewed on our website

Ratings And Awards

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Please Note: This publication is for accredited broker use only and is not for distribution to consumers.

^ Depends on risk grade of Borrower

All loan applications are fully assessed to ensure the loan is not unsuitable and that we meet our responsible lending obligations in accordance with our usual underwriting requirements. All features and interest rates are current as at the date of publication. Conditions, fees and charges apply. 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 be lower than expected. Investors risk losing some or all of their principal investment. The investment is not a bank deposit.

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

Terms, conditions, fees, charges and La Trobe Financial lending criteria apply.

1. Zenith's "recommended" rating indicates that it has high confidence in the manager meeting its objectives. The Zenith Investment Partners ("Zenith") ABN 60 332 047 314 rating referred to in this document is limited to "General Advice" (as defined by section 766B of Corporations Act 2001) and based solely on the assessment of the investment merits of the financial product on this basis. It is not a specific recommendation to purchase, sell or hold the relevant product(s), and Zenith advises that individual investors should seek their own independent financial advice before investing in this product. To view the relevant research information, please visit www.latrobefinancial.com.au The rating is subject to change without notice and Zenith has no obligation to update this document following publication. Zenith usually receives a fee for rating the fund manager and product against accepted criteria considered comprehensive and objective.
2. SQM Research - 4 stars to 4.25 stars - superior, suitable for inclusion on most Approved Product Lists. To view the relevant research information, please visit www.latrobefinancial.com.au This rating will not take into account your, or your clients' objectives, financial situation or needs. It is up to investors to consider whether specific financial products are suitable for your objectives, financial situation or needs. Research houses receive a fee from La Trobe Financial for rating the product.
3. Lipper Leaders Rating Total Return (Score – 5) Lipper Ratings for Total Return reflect funds’ historical return performance relative to peers. The ratings are subject to change every month. The highest 20% of funds in each peer group are named Lipper Leader or a score of 5 for Total Return. Lipper Leader ratings are not intended to predict future results and does not guarantee the accuracy of this information. More information is available at www.lipperweb.com. Thomson Reuters Copyright, All Rights Reserved.
4. Australia Ratings (AFSL 346138) makes every effort to ensure the reliability of the views and rankings expressed in its reports and those published on its websites. Australia Ratings research is based upon information known to it or which was obtained from sources it believed to be reliable and accurate at time of publication. However, like the markets, it is not perfect. This report is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore discuss, with their financial planner or advisor, the merits of each rating for their own specific circumstances and realise that not all investments will be appropriate for all subscribers. To the extent permitted by law, Australia Ratings and its employees, agents and authorised representatives exclude all liability for any loss or damage (including indirect, special or consequential loss or damage) arising from the use of, or reliance on, any information within the report whether or not caused by any negligent act or omission. If the law prohibits the exclusion of such liability, Australia Ratings hereby limits its liability, to the extent permitted by law, to the resupply of the said information or the cost of the said resupply.