Western Pacific Bank (Westpac), Australia's second-largest bank, has announced the application of new credit assessment criteria to applicants. The new standard, which will take effect on April 17, aims to ensure the authenticity of filings and borrowers' ability to repay loans by tightening borrowers' assessment requirements. The new standard also applies to Bank of Melbourne, Bank of South Australia and St. George's Bank of West Pacific.
According to the new policy, each borrower's expenditure, including pet care, tax and toiletries, must be disclosed one by one.
At the same time, West Pacific Bank 46% of its mortgage business comes from loan broker channels. The bank said it was making adjustments to fully understand customers' spending and liabilities, according to a notification letter sent by the bank to a co-operative loan broker.
Implementation background
According to a report released by UBS (UBS), Australia's "crook loans" were as large as 500 billion. If interest rates rise, these loans may cause a series of problems and problems. In addition, the current lending brokerage industry also has some worrying problems. For example, when a loan broker's bonus is tied to the size of a loan, it tends to lead to the phenomenon of "borrower's income overvalued and underspent".
According to statistics, nearly 1 / 5 of homebuyers in the past year have overstated their income, and nearly 1 / 2 of them have underreported their spending. At the same time, in the past few years, banks issued loans and insurance companies have very low standards of audit, credit risk loopholes.
Many bank lenders are not concerned about the solvency of lenders, who can easily obtain very high leverage for home purchases, perhaps only two payroll bills. Lender data verification has also been outsourced by banks to call centres in India.
Among other things, the Royal Commission's (the Royal Committee) investigation alleges that Westpac violated the legal rules governing credit liability and that the loan suitability assessment relied too heavily on a single benchmark measurement tool. Popularly speaking, West Pacific Bank did not fully consider the actual financial position of the borrower.
The former WPBC (Westpac) loan manager was sentenced to three years in prison for approving a $2.5 million fake mortgage application.
What are the differences in the new standards?
According to data released by Western Pacific Bank, the original general declaration of basic expenditure was gradually replaced by "specific and item-by-item declarations" to allow banks to properly assess the actual expenditure of borrowers.
It is reported that compulsory disclosure items include clothing and personal care, groceries, health care, transportation, self-housing, etc. At the same time, additional items also include investment housing and related costs.
In addition to increasing borrowers' reporting items, banks use higher standards than the traditional industry's "household spending benchmark," (Household Expenditure Measure), when assessing borrowers' ability to repay their loans.
The borrower's declaration is divided into 13 categories, each of which prescribes specific disclosures. In a typical supermarket category, for example, borrowers need to disclose food, cosmetics, and so on. In the entertainment and leisure category, borrowers need to disclose alcohol, tobacco, gambling, restaurants, club membership fees, pet care and holiday expenses. Expenses such as home and mobile phones include Internet access fees, pay TV and streaming subscription fees.
For lenders living with their parents, banks automatically add A $650 in nominal rent when assessing their expenses.
Comprehensive report
Australia's Federal government has long emphasized the concept of "comprehensive credit reporting (comprehensive credit reporting)" to reduce the impairment risk of existing lenders and open up the lending market to new participants.
At the same time, the Australian prudential Regulatory Authority (APRA), the banking regulator, imposed a cap on the growth of riskier loans, such as interest-only payments, in 2017, requiring major lenders to strengthen loan assessment, capital requirements and credit assessments.
In response to regulators' rules, Westpac has applied stricter test standards for borrowers' ability to repay their loans before introducing the new round of standards.
New foreign lenders and investment lenders will be affected by the current lending restrictions, combined with new standards introduced by Westpac.