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.
- Were they encouraged to include false information on the loan application, or to leave out information you considered important to the prospective Lender?
- 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?
- 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
- Has a client refinanced their loan several times, and in each instance increased either the monthly payment and/or the total amount they owe?
- 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?
- Is the loan amount on the loan they obtained higher than the value of the home?
- 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?
- 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?
- 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?
- 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 13 80 10.
To see a copy now, please follow this link...