More on Westpac’s new mortgage expenses crunch

From The Advisor:

The Westpac Group has updated its credit policies so borrower expenses will need to be captured at an “itemised and granular level” across 13 different categories and include expenses that will continue after settlement as well as debts with other institutions.

The changes, which apply to all loans submitted to any bank within the Westpac Group from Tuesday (17 April), aim to “provide a more accurate view” of borrower expenses so that the bank can “better determine their financial situation and repayment ability”.

The move comes just weeks after the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry questioned whether credit providers have adequate policies in place to ensure that they comply with “their obligations under the National Credit Act when offering broker-originated home loans to customers, insofar as those policies require them to make reasonable inquiries about the consumer’s requirements and objectives in relation to the credit 25 contract, to make reasonable inquiries about the consumer’s financial situation, and to take reasonable steps to verify the consumer’s financial situation”.

Despite the commission raising questions over whether the use of benchmarks is appropriate when assessing the suitability of a loan for a customer, the Westpac Group changes will still apply either the higher of the customer-declared expenses or the Household Expenditure Measure (HEM) for serviceability purposes.

Expense types

Brokers are being advised that they will no longer be able to bundle living expenses.

Instead, for all loans submitted from Tuesday, 17 April, brokers will need to capture all applicable expenses over 13 categories during the needs assessment conversation.

“Absolute Basic Expenses” will be replaced with seven mandatory expense types. These are:

  • Clothing and personal care
  • Groceries
  • Medical and health
  • Transport
  • Insurance
  • Telephone, internet, pay TV and media streaming subscriptions
  • Recreation and entertainment

There will also be an additional optional expense type, too. These are:

  • Owner-occupied property utilities, rates and related costs
  • Childcare
  • Education
  • Investment property utilities, rates and related costs
  • Other

Notional rent

An additional category of rented property utilities and related costs will be applied if the customer’s post-settlement housing situation is either “rent”, “board” or “living with parents”.

Where an applicant has this type of post-settlement housing situation, if the monthly rental amount is stated to be less than $650 per month, a “notional” rent amount of $650 per month will be applied automatically to each applicant on the loan, regardless of marital status.

For other categories, the Westpac Group has outlined that a broker will still be able to enter $0 for an expense type, but for certain mandatory expenses, when $0 is entered into an expense type, the broker will need to select a reason to explain why the expense does not apply to the applicant.

Evidence

It will also be mandatory for the customer to provide evidence for other financial liabilities, including ongoing rent/board, child support and any secured or unsecured debts held with other financial institutions.

These can include documents such as bank statements, signed and dated rental agreements, letters from property managers, transaction listings, court order or child support agency letters.

For debts with other financial institutions, the documents cannot be more than six weeks apart from allocation date.

This documentation must be included in the loan application submission. Assessors will then verify the documents submitted.

The existing requirements for HELP, HECS and TSL debt will still apply.

Declaration

The customer must also now sign a “financial acknowledgment” as part of the loan offer documents indicating that all details relating to expenses and debts are true.

The bank said: “Westpac is committed to responsible lending and ensuring that we have a clear understanding of our customers’ financial situations.

“We are proud to work closely with our broker partners to continue to meet our responsible lending obligations and do the right thing by our customers. That’s why we are updating the Westpac credit policies to enhance the way we capture living expenses, commitments, and verify documentation.”

It added: “It’s all about looking after the customer by fully capturing their financial commitments to ensure they can adequality manage the mortgage liability they are potentially signing up for.”

How the changes will impact lodgements

ApplyOnline (AOL) and aggregator systems are currently being updated to cater for these changes.

The bank has outlined that any applications submitted before 17 April will be assessed as pipeline deals.

Applications saved or drafted in ApplyOnline before this date (or for applications resubmitted after this date) will need to be updated with the new expense type.

The banking group warned that any changes outside of the acceptable amendments under pipeline will require a reassessment and the previous approval may no longer be valid.

Brokers are being asked to check Westpac Broker Net or speak to their BDM if they have any further questions.

Crackdown on expenses

The move by Westpac marks the first wholesale change made by the major banks to tighten up their expenses collection process following the royal commission.

The commission was damning in its critique of the lenders’ policies when it came to ensuring customers can afford their home loans, with ANZ being called out for their “lack of processes in relation to the verification of a customer’s expenses”, and both Westpac and NAB revealing that there had been instances of their staff accepting falsified documentation for loans.

For example, it was revealed that there had been “at least 55 instances of Westpac staff either falsifying or accepting falsified supporting documentation in connection with home and personal loan applications, [and] a number of instances of Westpac staff receiving payments from referrers for the referral of customers to Westpac for loans”; while some NAB staff members were allegedly “charging NAB customers a fee for personal loans… made as cash payments under the table”.

It is expected that several other banks will follow in the footsteps of Westpac and make similar changes to their expense verification process in the coming weeks.

Houses and Holes

Comments

  1. JspitzerMEMBER

    Speaking to a mortgage broker yesterday about the interest only reset and 40% rise in payments. He worked out it is only 31%(still significant) as different interest rates and everyone only does 30 year loans, even older people still have no problem with 30 year loans!

    • Lots have already turned p and i and are turning now because of lower rate 3.75% instead of 4.50% but if they have money in offset are only liable for the lower rates
      I think it will make a difference in 2019/20/21/22 slowly
      There were lots of loans done 10 years int only in 2009/10/11/12/13/14 that will fall due p and i but the repayment goes to 20 years p and i
      There are lots falling due 19/20/21/22 that were 5 years int only so less of an increase
      I think it’s a slow drag on the economy rather than a whack
      There will be some portfolio investors that need to sell
      OK re WBC group
      The new expense calculator was modeled by the “SOUP NAZI”
      NO LOANS FOR YOU
      find another bank.
      Consumer credit is going to fall through the floor in the next 6 months
      RC changes now are much worse than int only reset

      • IO to P&I will only affect those without inadequate offset account balances.
        Otherwise negligible impact.

      • Jumping jack flash

        “The new expense calculator was modeled by the “SOUP NAZI”
        NO LOANS FOR YOU
        find another bank.”

        So, WBC closing the hatches and working out how to satisfy ratings agencies while feeding on their existing crop of debt slaves?
        If so, then it won’t be easy.
        There’s still all that hot, short money lent long that needs to be rolled over. Or isn’t that an issue any more?
        I guess it will only be an issue if they can’t post record profits YOY for the next 30 years…

  2. “An additional category of rented property utilities and related costs will be applied if the customer’s post-settlement housing situation is either “rent”, “board” or “living with parents”.

    Where an applicant has this type of post-settlement housing situation, if the monthly rental amount is stated to be less than $650 per month, a “notional” rent amount of $650 per month will be applied “

    Ahahahahhahaha $650/month in rent. Which decade are these idiots living in, 1980s?

    • 650 per month !
      Where can we rent for 150 a week in Sydney or Melbourne.
      Even a share room costs 200 to 300 anywhere near a bus…
      Perhaps the bank Managers could rent out their spare rooms in their large houses at an affordable rate?

    • I can understand “board” and “living with parents”. Maybe “rent” refers to the situation where you are a “kept” man or woman. You would need to spend $650/month to supplement your wardrobe, get your nails and hair done, and generally maintain the right image.

    • Jumping jack flash

      650/m? Wow. Serious?
      Even in my cheap little town I pay about 1000/m, and my rent is low compared to others’ here.

      Obviously they’ve set their rent rates to the public housing rent rate.

  3. Ahahahha to this too: “The customer must also now sign a “financial acknowledgment” as part of the loan offer documents indicating that all details relating to expenses and debts are true.”

    Yes, the honour system will stop liar loans!

    • It will absolve the banks from responsibility for double checking, and will also stop them being sued for issuing an oversized loan to someone who can’t pay it back. That is the whole point no doubt.

    • Arrow2 explains why it matters.
      So business as usual – moar liar loans minus the liability.

      • Jumping jack flash

        They can’t afford not to have liar loans.
        Who could actually afford the hundreds of thousands of debt dollars required to get onto the debt ladder if they told the truth?

        In any case, income is irrelevant. It is the value of the asset the debt is attached to that is the most important thing.
        Nothing can be done that will even have the slightest possibility of actually devaluing that asset.

  4. This is just more documentation for the same result. i don’t think this is actual tightening of the lending criteria, decline rates are closely monitored, once the histeria dies down it will all get back to BAU.

    What many people don’t realise is that the real risk in housing market and economy is the ability of people to refinance and cash-out. If that stops then the retail spending will take a major hit and the snowball will bring a major economic event.

    There are no industry figures published on the amount that is withdrawn each month by people using the home value appreciation.

    • 40%
      house goes up 100000 – they spend 40000 on SUV.Sorry, no link. For years was:
      income after tax 55000 plus equity 30000 =85000 spending,
      next year again. Remember articles how one’s house “earn” more than laboring?
      Land prices don’t have to come down, they just have to stop going up and voila 30000 dollars missing in household “budget”

  5. Seems nice but this is hidden in there: “The Westpac Group changes will still apply either the higher of the customer-declared expenses or the Household Expenditure Measure (HEM) for serviceability purposes”

    So – just make up random numbers for all the expense categories and make sure it comes in lower than the HEM. Then they will forget about checking your numbers and apply the stupidly-low HEM as usual.

    No change.

    • So … it’s all a stitch-up.. it’s HEMmed in!

      Thank you! Thank you! I’m here all week – try the buffet!

    • The exercise is about protecting the bank from litigation (or covering the ass). You said it yourself above.

    • So we’ve gone from provide no evidence submit and arbitrary number to provide no evidence and submit many arbitrary numbers. Looking more toothless by the day.

    • It will reduce credit availability to honest applicants which is a good thing. Liars will still be able to get their massive servings of debt for which they will have no legal recourse vs the bank.

  6. People I have been speaking to say this is real.

    The RC is a game changer and changes are coming ahead of the RC findings.

    Also, everyone is expecting a housing correction of sorts. Banks don’t want customers as highly leveraged as before.

    • The trouble is, once it triggers a correction it will be impossible to stop it at a “half corrected” state.

    • Correct. People’s desire to protect their position outweighs their desire for the common good! Once fear takes hold, it is every man for himself. One reason stock markets have tried various trading curbs or circuit breakers.

      • Of course, the remedy is to not get there in the first place, but hey – free markets, ey?

        Oh well – I guess we’re off to ‘he who panics first, panics best’!

      • Seen a couple of places in Seaford sell below indicated price range also..

        Funny that place is a Super Wog Palace – I stir the missus we should get a place like that (She’s Greek) but hates that architecture haha. Thankfully I suppose. Good for a garage + cars. Just gotta figure out how to make it look less mediterranean in style. 😀

        Huge block! Compared to stuff I was looking at around 600 sqm and selling for $1.1M (crazy really)..

        This 1 failed to sell at auction a while ago and has been sitting on market for ages.
        https://www.realestate.com.au/property-house-vic-reservoir-127378214

        Price was not unreasonable 6 months ago, would have sold easily. Maybe wrong side of Reservoir? Definitely not the nicer part… I also can’t stand the idea of paying $700k+ for a house that was previously built by Government as social housing.. Seems wrong.

      • Fake Greg Jericho

        I hear ya on the wog mansion. Thing i like about it is its endless space. Could put a studio in it, or future proof your kids by having enough back yard for them to build in.

        Didnt know Winter place was ex council housing. Insane. Though i like the look of it. Cosy . Must be a shit area. An hour to walk and catch PT to city probably

      • Yeah a lot of space in those old ethnic mansions :). I just don’t know how to make them more appealing looking. I’m sure it can be done but I’ve just never seen myself living in 1. Although I will say this about them. They always have plenty of garage space (good) and I don’t mind the veggie gardens they all seem to have out back (and they love concrete, which I actually don’t mind because I’m sick of mowing big lawns in summer). So they have pro’s and con’s.

        RE: Winter Place Ex-Council housing, a lot of them in Reservoir on big blocks (small houses), I think that part of Reservoir is not near coffee shops, but I believe there is a tram line along Plenty Rd from Bundoora etc.. so it’s not too bad, but it’s also closer to the Greensborough side of Bundoora and Heidelberg West side of things and I think in those suburbs $700k goes a long way..

    • Gavin,
      your girl is Greek. For your deposit in crime infested area, you can buy the house in Santorini and do Airbnb, live longer and happier life. Try to think outside the square. Reservoir is shitty for 500000 IMHO.