2nd June 2014

Disclosure the Best Reward

Mortgage fraud, or business fraud in general, will never go away. Those who have a false belief that theft is a form of living, rather than mere existing, help make this a reality.

There are only four ways to reduce fraud; 1) education; 2) selectivity; 3) fear of prosecution; and 4) positive rewards.

Of the four, 'Education' is perhaps the best long-term method. If used properly and consistently it can ensure quality loans, from the beginning of the loan application process. After over sixty (60) years in this business, training at the originator level has, for the most part, not changed from the antiquated, "Here's your amortisation book and your territory, go and get some loans." This fosters an industry inhabited by those interested in commissions rather than the customer. Happily, the industry associations are now making an aggressive effort to provide sorely needed education, and so has La Trobe Financial.

'Selectivity' means lenders create restrictive standards to do business with people they suspect of fraud. This is perhaps the most difficult to achieve, because anyone who thinks financial statements equate to quality, only need to remember the Savings and Loan problem in the U.S. to see that size is not the measure of quality. A careful formula that includes experience must be proposed.

'Fear of Prosecution' is a viable alternative in our litigious society. Those with a fraud mentality will most certainly find some logical reason to continue their ways. An industry that aggressively prosecutes these people and publicises the outcomes is a great start.

'Positive Rewards' is perhaps the easiest concept to understand, but hardest to implement. The concept is simple: Give those who consistently produce quality loans a competitive advantage over those who don't. The concept of rewards for quantity production are well known, but in an industry where quality affects both short-term and long-term profitability, more may be done to reward quality loan packages.

The primary reason to give rewards for good loan packages is the cost to the lender. Many lenders have looked at their quality control/audit departments as a profit centre, in the sense that if they had to re-purchase a loan, the cost could be astronomical, both financially and in reputation. Conversely, it is safe to assume, loans produced by quality originators cost a lender less to sell and to service.

Ten Commandments for Good Lending

  1. Thou shall fully explain the origination process.
  2. Thou shall give customers several product options.
  3. Thou shall not bait and switch.
  4. Thou shall quote the borrower accurate fees and rates.
  5. Thou shall disclose all material facts on the loan application.
  6. Thou shall insure that all documents are complete and accurate.
  7. Thou shall tell the truth.
  8. Thou shall fund loans where the loan is accepted.
  9. Thou shall under-promise and over-deliver.
  10. Thou shall originate good loans (loans that pay!)

If you would like to sight a copy of our internal loan fraud policy statement, please contact us on 1 800 707 707.

... 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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Commercial SMSF Video, Paul Wells, Division Head of the Asset Origination & Credit Team
Australian Broker speaks with La Trobe Financial’s Chief Investment Officer, Paul Wells, about our views on commission clawbacks in the specialist lending market and the value to brokers of Australia’s niche credit specialist market.
Investor Call Briefing Q3 FY2014, Chris Andrews, Head of Funds Management

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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

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

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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.
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